An industry submission proposes inflation relief for long-held rental property, but the Treasury has made no commitment
Landlords are asking the Government to change how Capital Gains Tax applies to residential property before the Autumn Budget on 28 October. The National Residential Landlords Association has submitted a detailed proposal under which tax would focus more closely on real gains in value rather than increases caused by inflation.
The proposal goes beyond calling for a lower headline rate. It would change the calculation itself and could reduce the tax due when a long-held rental property is sold. However, it is an industry recommendation, not Government policy, and landlords should not assume it will be adopted.
What is being proposed
The NRLA wants the allowable base cost of a residential property to be indexed in line with the Consumer Prices Index. The calculation would start with the original purchase price and include Stamp Duty, other acquisition costs and qualifying capital improvements, with each amount adjusted for inflation from the date it was incurred.
A second element would link the maximum relief to the length of ownership. A property sold within three years would receive no relief, while the available amount would increase progressively for longer ownership. The relief could not create or enlarge a capital loss and could not exceed the inflation actually experienced.
The stated aim is to protect genuine long-term investment without rewarding short-term speculation. The NRLA says the reform should proceed whether or not the Government changes headline CGT rates.
The current position
For the 2026 to 2027 tax year, individuals generally pay CGT at 18 per cent on gains falling within the basic-rate band and 24 per cent on gains above it. The annual exempt amount is £3,000. A person’s exact liability depends on their income, gains, allowable costs, losses and reliefs.
CGT is charged on the nominal gain. Inflation is not currently stripped out simply because a property has been owned for many years. That distinction matters when prices have risen substantially over a long holding period, although a nominal increase can also reflect genuine market value, improvements and local demand rather than inflation alone.
The latest figures explain the pressure for reform
HMRC’s statistics, updated on 27 August, show that 205,000 taxpayers reported 230,000 residential property disposals in 2024 to 2025. Reported gains totalled £12.9 billion and CGT liabilities reached £2.8 billion. All three measures were higher than a year earlier.
The higher residential-property rate was cut from 28 per cent to 24 per cent during that year. HMRC says this reduced tax collected per transaction but was expected to encourage earlier and additional disposals. Other factors also contributed, so the increase cannot be attributed to the rate cut alone.
The NRLA estimates that its inflation and holding-period reform would reduce receipts by about £1.21 billion a year under its central static scenario. That estimate does not assume that extra sales, purchases or reinvestment would recover the cost. The Treasury would therefore have to weigh any improvement in market activity against a substantial and uncertain loss of direct revenue.
Why this matters to landlords and tenants
For landlords, a lower tax barrier could make it easier to sell a poorly performing property, rebalance a portfolio or fund improvements. It could increase the supply of tenanted investments, although some sales would move homes out of the private rented sector.
For tenants, the effect would depend on what owners do next. A more active market could support investment and allow rental homes to pass between landlords without vacant possession. Conversely, a tax incentive that accelerates sales to owner-occupiers could reduce local rental supply. The design would therefore matter as much as the headline relief.
There are questions of fairness and administration too. Indexing acquisition and improvement costs would require reliable records and a clear method. The Government would also need to explain how the relief fitted the wider taxation of capital gains.
Local Housing Allowance is part of the same submission
The NRLA has also asked the Government to end the freeze in Local Housing Allowance and reconnect support to at least the cheapest 30 per cent of local rents. LHA helps determine housing support for many private tenants, but published rates for 2026 to 2027 do not automatically track current market rents.
That proposal has a different purpose from CGT reform. It is intended to reduce the gap between benefit support and actual rent, widen access to homes and lower the risk of arrears and homelessness. It would also increase public spending. Neither proposal has been accepted by the Treasury.
The Budget will provide the answer
The submission offers more than a simple demand for tax cuts, but it still creates costs, complexity and difficult distributional choices.
Until the Chancellor speaks on 28 October, the current CGT and LHA rules remain in force. Landlords considering a disposal should use the law and rates that apply now and obtain individual tax advice rather than acting on Budget speculation.
NetRent does not provide legal advice. This article represents our understanding of rental property law and is provided for general information only. Landlords should obtain independent legal or professional advice where appropriate.
Telephone: 01352 721300
Email: support@netrent.co.uk