The government is being challenged over suggestions landlords are taxed more favourably than homeowners – a claim cited as a reason for introducing the controversial mortgage interest relief changes coming in next month.
From this April, mortgage interest relief for landlords will begin to be restricted to the basic rate of income tax, with Treasury Minister, Jane Ellison MP arguing in Parliament that plans to restrict mortgage interest relief for landlords “will reduce the tax advantage landlords have over homeowners in the property market.”
This assertion was rejected last year by Paul Johnson, director of the respected Institute for Fiscal Studies, who said that the tax system “is not, and was not, even before the recent changes, more generous to people buying to let.”
Unlike homeowners, landlords pay income tax on their rental return, and pay Capital Gains Tax when they sell a property.
With a former member of the Bank of England’s Monetary Policy Committee warning that landlords will need to increase rents between 20 per cent and 30 per cent to cope with the extra costs of the tax changes, the RLA is warning that the policy risks considerable hardship for tenants based on false assumptions.
It is today writing to the Office for Budget Responsibility to provide clarification on the tax burden on landlords compared with home owners.
RLA Chairman, Alan Ward said: “We are now weeks away from a tax change that risks investment in new homes, and will cause considerable hardship for tenants.
“It is troubling that Ministers have not published any evidence to back up their assertions that landlords are taxed less heavily than homeowners. This is no way to make policy.
“We call on the Government to halt its planned tax changes which will do little to provide the new homes to rent they claim to want.”