The Chartered Institute for Housing claims that if landlords who committed to improving their homes benefited from a more targeted allowance – while those who did not saw their allowances stay the same or reduce – the quality of the PRS stock could rise without additional government spending.
This week The Chartered Institute for Housing (CIH) published their annual Housing Review for 2014. According to the report 33 per cent of the Private Rented Sector (PRS) stock would have failed the government’s Decent Homes Standard – the test for social housing.
A key recommendation from the report suggests that the government should look at new ways of improving standards in the private rented sector by targeting tax allowances.
The current system allows private landlords tax allowances per year for deductible expenses like repairs and maintenance, insurance and professional fees. But the CIH argue that these neither target nor incentivise the achievement of higher standards.
The CIH claims that if landlords who committed to improving their homes benefited from a more targeted allowance – while those who did not saw their allowances stay the same or reduce – the quality of the PRS stock could rise without additional government spending.
The RLA recognises that the private rented sector is growing rapidly with more people living in private rented housing – including more older people, more families with children and more vulnerable people from the housing waiting list, and that maintaining high standards in the sector is crucial to its success. However, the issue of taxation in the PRS is very complex.
The reality is that for many landlords current returns on their investments in the PRS are extremely low, as landlords already face high costs and tax burdens. In the UK any major expenditure on a property is classed as capital expenditure and is heavily taxed at point of sale through Capital Gains Tax, with no interim relief against income. Again, this detracts from the ability of landlords to invest in their properties, particularly smaller scale or ‘accidental’ landlords whose money is likely tied up in the property.
We feel that more clarification is needed around how CIH envisage a system like this working practically and where resources would be committed to asses which landlords will see their tax relief increase or decrease, as we believe potentially taking more money from Landlords through taxation risks putting off much needed investment and reinvestment in the sector. Housing supply is already in huge demand and the PRS is providing a much needed alternative to home ownership or social housing. Instead we feel that more tax allowances, such as a depreciation allowance, the reintroduction of tapered capital gains tax and enabling the rollover of assessed tax to new properties would all further improve returns and make the PRS more responsive to changing patterns of demand.
Finally, it is important to remember that in the longer term higher tax burdens on residential landlords will also have implications for tenants, who will feel much of these growing levels of taxation passed onto them through rent increases. A system like the one CIH is suggesting could risk further complicating an already over regulated sector and deter potential investment. The Residential Landlords Association has warned the move could hamper the supply of privately rented homes and ultimately worsen standards.
Director Mark Butterworth told the Guardian,
“While official figures show that tenant satisfaction rates are higher in the private rented sector than the social sector, we cannot be complacent about standards. Boosting supply is the best way to improve standards and to do so we are calling on ministers to reform the tax system to better encourage landlords to invest in new homes to rent.”
Last week RLA Chairman Alan Ward also took part in a discussion on the Radio 4 programme “You and Yours” where he put forward the RLA proposals on taxation in the Private Rented Sector. You can read the RLA report ‘Investing in Private Renting, Landlord returns, taxation and the future of the private rented sector’, written by Professor Michael Ball that explores taxation and returns in the PRS in more detail here.
You can also have your say by contacting the RLA campaigns team with what you think about the CIH proposals by calling 0845 666 5000 or email firstname.lastname@example.org .