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Economics Professor slams Landlord Tax Changes

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 understanding change in society, and before joining the RLA he spent 4 years researching the changing roles of Fire and Rescue Service employees. He holds a M.Sc. degree from Manchester Business School, University of Manchester in Organisational Psychology and completed his undergraduate training in Psychology at the University of Chester.

2 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.

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