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Economics Professor slams Landlord Tax Changes

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Tom Simcock
Written by Tom Simcock

A leading Professor of Financial Economics, from Imperial College London, has released a scathing analysis of the government’s landlord tax changes. Professor David Miles has analysed the impacts of  the changes to mortgage interest relief and stamp duty land tax (SDLT) on the finances of landlords.

As you may be aware for landlords from April 2017  the amount of interest on mortgages that can be offset against tax on rental income will be gradually reduced down to a basic rate. Landlords will also be required to pay an extra 3% in stamp duty land tax on the purchase of properties, as well as the higher rate of Capital Gains Tax.

In his analysis of the changes and the potential impact on the sector, Prof. David Miles argues that these tax changes will make rented properties even less favorable in the tax system than owner-occupied properties. The Institute for Fiscal Studies (2015) expressed concern over these measures and argued that these “exacerbates tax bias towards owner-occupation”. He further explains that these changes will hurt those who are currently renting or renting and looking to buy their first property.

In his analysis, Prof. David Miles identifies that the tax changes are likely to lead to a requirement for higher rents. One clear finding of his analysis was that changes to mortgage interest rates is likely to lead to rent increases of 20%, while the additional stamp duty changes would push this to 25% overall. When other factors were adjusted, such as interest rates and loan to value ratios, the results of his analysis identified that rents would need to rise by 20% and 30% to offset the tax changes.

Prof. David Miles makes a number of conclusions based on his analysis, including that these tax changes will negatively impact on the rental market, reduce supply and hurt first time buyers who rent.

Based on the analysis and findings, Prof. David Miles final conclusion about the tax changes was “They should be abandoned”.

We share his concerns on the impact of these changes on the private rental market, landlords and tenants.

Based on our own research, we identified that a majority of landlords will be negatively impacted by these changes. With 67% of landlords reported that the changes to mortgage interest relief will reduce profitability, with the average reduction of profitability to be 34%.

We have been actively campaigning on these issues since the changes were announced. Fighting in the corridors of Westminster and lobbying MPs and officials. We are currently urging our members to contact and visit their MP over this issue. If you haven’t already, please contact your MP and raise these concerns about the tax changes with them.

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We are calling on the Government to use the unexpected extra revenue from its stamp duty levy to halt the implementation of the mortgage interest changes, or at least apply it only to new borrowing for new housing.

David Smith, Policy Director for the Residential Landlords Association commented:

“Professor Miles’ assessment proves that current tax policy will be counterproductive in making rents affordable and increasing supply to meet the growing demand.

“It is time for the Government to think again.”

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About the author

Tom Simcock

Tom Simcock

Tom is the Research and Information Officer for the RLA. He works hard to understand the issues affecting the PRS and to use our research findings to inform policy decisions.

His expertise lies in researching change in society, quantitative and qualitative research methodologies, and behavioural and psychological change approaches. His research on the private rented sector and housing has received national media coverage and has been cited by the House of Commons, House of Lords and the London Mayor. For the past 4 years, he has been researching the changing roles of Fire and Rescue Service Employees as part of his PhD research. Tom holds an M.Sc. degree from the University of Manchester, and a B.Sc. degree from the University of Chester.

3 Comments

  • Another nail in the coffin of Sec.24, but the Government are determined to keep it on life support until the bitter end. And cause untold misery to an estimated 4.6m tenants, but hey most aren’t Tory voters.

  • The main question should always be “does the tax/economics proposal look at everything in the round?” Especially as there is much broken in our housing system and taxation system.

    What the government doesn’t realise, is that just as retailers can’t always put prices up when input/regulatory costs rise, so too applies to rent. If the report factors in wages and affordability then it is very thorough and to be commended. It is a key component of demand.

    If it does not, then it is missing a key input and its conclusions are vulnerable. If people are at rent/debt saturation point and do not get wage rises, rent rises will only lead to, on average, increase void periods or increased delinquency as people house/flat share, couch surf, more move in with parents or grandparents etc.

    Whether or not a landlord can risk void period and delinquency then becomes an individual decision for each landlord.

  • I think the main point being ignored by all concerned is that discrimination against an identifiable section of the population is illegal. To say that landlords are not being discriminated against would be a statement which would personally leave me breathless.

    So far in 25 years of being a landlord I have discovered that the perpetual message being sold is that of the rogue landlord, the irresponsible landlord, the bullying profiteering, rackrenting Rachman of the netherworld. No such opprobrium attaches to the poor downtrodden tenants who wreck my properties on occasion.

    I cannot access funds at a reasonable rate. There are no new landlords coming up to buy my portfolio as I would like to retire. Anyone who wants to buy will do so only at a substantial discount to the market value.

    Tax has become an absolute nightmare right across the sector, with HMRC engaging in speculative investigations – under the guise of seeking out the “Bad landlords”

    So even if I was to sell my portfolio there are discriminatory taxes on the sale and no tax relief for being a responsible member of society who costs the taxpayer not a penny. No congratulations on looking after your old age.

    If I expand there are discriminatory tax penalties
    My income is under special attack compared to ALL others in the land, while housing associations and local authorities enjoy special relations and subsidies. Many of those working in the organisations could not build a portfolio from scratch but earn figures which guarantee their pension will put my pension to shame

    In Scotland changes to legislation, licensing, increased rights and the concomitant media coverage (ALL negative if not downright insulting to the average landlord) have left us with a playing field where the LA’s and the housing associations feel ok about forcing the antisocial tenant onto the private sector and the free market landlord is left feeling helpless in the face of the increased burden of legislation and the increased difficulty in getting the tenant to court.

    There is nowhere to sya these things and no one to listen; certainly not the PRSSG where there are 80 seats for organisations NOT landlords and 1 seat for landlords. Many of the aforementioned organisations are multinational so have little in common with national agendas, but have a huge effect on policy. They have nothing else to do but get alongside government and develop grants and be seen as the goto guys who are assisting Government. In my area Shelter are trying to present themselves as the prime contact for landlords……….. The wolf played amongst the sheeples

    Anyway Rant over
    RLA seems to be doing a good job.
    Cheers

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