The UK Government is being urged by landlords to use the upcoming Budget in March to reassess its policy on stamp duty for buy to let properties and mortgage interest relief tax change due to be introduced in April.
Alan Ward, chairman of the Residential Landlords Association (RLA) believes that the Budget provides an opportunity for the main issues concerning landlords to be addressed as it is tenants that will ultimately suffer through higher rents.
The RLA is calling for the planned changes to mortgage interest relief to be halted, or at the very least only applied it to new borrowing for new homes to rent and for the 3% stamp duty on additional homes to be reviewed.
The association believes that the current situation means that landlords in the UK face ‘one of the most hostile tax regimes in the western world’. Ward explained that the phasing restriction of mortgage interest relief to the basic rate of income tax along with other recent measures will make renting a much less attractive investment option for many.
‘At a time when increasing numbers of people rely on the rented sector, which will account for 25% of all housing by 2025 according to forecasts, this will only reduce the growth in supply, driving up the cost of rents,’ he said.
‘Retrospective taxation cannot be right. This is in effect a tax on new homes which is nonsensical when more homes, of all types, are desperately needed. Instead this levy should not be applied where landlords are investing in housing which adds to the overall number of homes available,’ Ward pointed out.
‘Help could also be given to tenants wishing to buy by applying the new lower 20% rate of capital gains tax where a landlord sells a property to an occupying tenant. The Budget provides an important opportunity to support a thriving rental market that is good for tenants, good for the economy, and good for Treasury revenue,’ he added.
The RLA looked at what happens in other countries. It said that in Germany, seen by many as the model to follow when it comes to the private rented sector, landlords are able to deduct all mortgage interest from their property income, deduct rental losses against other income and claim depreciation costs. Capital gains tax is also not paid on disposal of property owned for more than 10 years.
In Australia, mortgage interest relief is allowed in full and investors can discount rental losses from their other income and gain a 50% deduction on capital gains tax when they sell a property owned for more than one year.
In the United States, landlords are able to deduct mortgage interest from their rental income as well as offset a certain amount for depreciation each year. The amount of capital gains tax also falls depending on the length of ownership.
‘The list goes on, but the point is that no other comparable country has a tax system that is so hostile to private rented housing provision,’ said Ward who argues that many of the recent policies were based not on evidence but ‘played to the myths that have too often dominated debate around the sector’.
He claimed it is a myth that landlords are taxed more favourably than home owners and that there is no evidence that the tax changes will benefit first time buyers or that landlords are crowding home owners out of the market.
Ward said there is some anecdotal evidence of competition between landlords and buyers in specific cases but a report by the London School of Economics last year concluded that only a ‘minority’ of house sales involved bids from landlords and first time buyers.
‘These tax changes will inevitably place upwards pressure on market rents that can only make life more difficult for the Prime Minister’s so-called JAMs, those who are just about managing, and those tenants wanting to save for a deposit,’ Ward added.
‘If we are to secure the new homes to rent we need the Chancellor Philip Hammond in his forthcoming Budget should get behind the majority of good individuals that make up the country’s landlord population and who supply the overwhelming majority of rented housing,’ he concluded.
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