New research undermines the Government’s case that its changes to the way landlords are taxed will not increase rents. Interim findings from a survey of landlords by the Residential Landlords Association (RLA) has found that 65% are now considering increasing rents as a direct result of the Budget.
The Chancellor announced earlier this month that Mortgage Interest Relief for residential landlords would be restricted to the basic rate of income tax.
Also landlords will no longer be entitled to an automatic entitlement to a wear and tear allowance for their properties, leaving them with no recompense for general wear and tear of a property.
Today’s findings undermine HM Revenue and Customs’ assessment that these measures will have no significant impact on rent levels.
As MPs prepare to debate the Finance Bill later today, and with the Chancellor also being questioned on his plans by the Treasury Select Committee, the RLA is warning that the basis of the Budget assumptions is wrong.
The Chancellor had argued that landlords are taxed more favourably than home owners. Both the Institute for Fiscal Studies and the Conservative’s favourite think tank, Policy Exchange, have warned that this is not correct. Unlike home owners, landlords are taxed on rental income and capital gains.
Commenting on the revelations, Alan Ward, Chairman of the Residential Landlords Association said:
“The reality is that the Chancellor’s belief that rental property is taxed more favourably than home owners is simply not correct.
“Rather than supporting the sector to provide the vital homes needed to support a flexible labour market, today’s Finance Bill will choke off supply and drive up rents.”
Mr Ward continued:
“The belief that landlords should be compared to home owners is like comparing apples with pears. The two are vastly different.
“It’s time the Treasury recognised residential landlords as a business.”
- HM Revenue and Custom’s assessment of the impact of the decision to restrict Mortgage Interest Relief to the basic rate of Income Tax is available at https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords . It argued that it is “not expected to have a significant impact on either house prices or rent levels due to the small overall proportion of the housing market affected and the offsetting impact of wider budget measures.”
- On the 9 th July, Paul Johnson, Director of the Institute for Fiscal Studies gave his reaction to the Budget, available at http://www.ifs.org.uk/uploads/publications/budgets/Budgets%202015/Summer/opening_remarks.pdf . He said, “The tax treatment of rental housing will be made less attractive though. At present if you own a property which you let out to tenants you can set any mortgage interest costs against tax due on rent received. The Budget red book states that this means that “the current tax system supports landlords over and above ordinary homeowners” and that it “puts investing in a rental property at an advantage”. This line of argument is plain wrong. Rental property is taxed more heavily than owner occupied property.”
- Policy Exchange, has confirmed this noting that: “In truth, the tax system massively favours home ownership – for one thing home owners do not have to pay capital gains tax on their principal residence, whereas buy to let landlords do on the rental properties they sell. Rental income is also taxed (and even more now).” (Source: http://www.policyexchange.org.uk/media-centre/blogs/category/item/additional-policy-exchange-analysis-of-summer-budget-2015 ).
- 1,146 landlords responded to a survey question asking how they were considering responding to the tax changes announced in the Budget. 748 indicated that they were considering increasing their rents – 65.27%.