Taxation of Residential Landlords


At a time of major financial crisis, people seeking accommodation are turning increasingly to the PRS for accommodation. This is due to prospective owner/occupiers being unable or unwilling to buy at the moment, as well as the increasing tide of repossessions resulting from the “credit crunch”. The RLA firmly believes that with minimal loss to the Exchequer, the private rented sector (PRS) can become a vehicle for increased economic activity.

For instance landlords in the PRS are still employing workmen, e.g. to do repairs and buying materials. More could be done to stimulate demand to the general benefit of the national economy. With these factors in mind the RLA urges the Government to take a number of initiatives which will help the private rented sector.

Value Added Tax

Now that the EU has recently agreed to maximum 5% tax rate for renovation and repair work, the Government should reduce the tax rate for such works as a matter of urgency. This will provide a real boost, encouraging landlords to bring forward programmes for renovations and repairs. Stock condition surveys recognise that many properties comprised in the PRS are pre-1919. They are older type properties which are more expensive to maintain and often need refurbishment. This is, therefore, a unique opportunity to encourage landlords to carry out works on their properties. This will take tradesmen off the dole queue and help manufacturers of building products, builders merchants and the like.

At present, there is a significant disincentive to converting properties, as opposed to new build. The Government is concerned at the lack of take up of build to let. The same could be said of “convert to let”. Many buildings lend themselves to sub-division extension etc and provide a viable alternative to new build. However VAT treatment in such circumstances is disadvantageous as compared to new build for sale where zero rating is available. There needs to be a review of the VAT treatment of conversions. Reduced VAT rates should apply where a property is converted for residential purposes, whether it is sold off or rented out. In this way, bringing new properties into the rented market would be encouraged and this would increase the supply of available housing.

Tax relief for carrying out works to comply with HMO conditions

Previously, the RLA has urged the Government to introduce tax relief on expenditure to carry out works to improved licensed houses in multiple occupation so as to comply with licence conditions. For example, programmes of works may be needed to improve fire safety or to install new amenities. Normally such work would only qualify for capital gains tax relief. However, as these works are having to be carried out by law, it is only fair and appropriate that tax relief should be available against income tax in respect of the cost of such works.

Capital Gains Tax on Active Residential Property Investment Businesses

For many years, the Association has urged the Government to alter the law so that residential property investors who are actively involved in managing their businesses are treated as traders. This would then enable those carrying on actively managed residential property investment businesses to claim Capital Gains Tax rollover relief for reinvestment, as well as more advantageous taper relief. On first sight, it might be suggested that this would lead to a loss of tax revenue. On the contrary, it would free up the residential property investment market expressly now that it is largely stagnant. Properties would change hands more often. At the moment, many landlords sit on properties because of potential Capital Gains Tax liabilities. This damages both the housing market and tax receipts. There is concern in Government that the private rented sector stock is not as well maintained as other sectors. This would be helped because, when a property changes hands, there is every likelihood that the new owner will refurbish and improve the property. New owners have new ideas and will make investment in the property. Similarly when properties change hands the Government receives stamp duty land tax and other taxes. All in all, freeing up these properties will both improve the state of the private rented housing stock and increase tax receipts.

Stamp Duty Land Tax

Portfolio sales should not be aggregated so that tax is paid on the value of individual properties instead.

Treating Landlords as Businesses

The Government commissioned Rugg Review written by Julie Rugg and David Rhodes recommends to Government that it is vital that Government increasingly treats private landlords as businesses. The RLA believe that it is essential for there to be joined up thinking between the Treasury, CLG, BERR and other related Government Departments. Julie Rugg recommends appropriate taxation treatment for landlords so that they are taxed in the same way as other businesses. Due to a historical anomaly, landlords are not treated as traders. The RLA has always taken the view that the business of renting out properties as homes is economically important. The RLA has very much welcomed many of the proposals made by Dr. Rugg. Without co-operation from the Treasury it is not going to be possible to carry her ideas forward.

Capital Allowances/Energy Efficiency

There should be capital allowances for landlords to cover improvements, refurbishments and major repairs. At the moment these only qualify as allowances against capital gains tax if and when a property is sold. Instead, income tax/corporation tax relief should be given over a period of time. The current scheme for general allowances for energy conservation needs to be extended and expanded.


The private rented sector is now acknowledged as a key provider of homes. It is a sector which is growing and this was happening even before the current credit crunch. This growth needs to be continued. Taxation policy plays a vital part in the health of the PRS. There is a strong argument that the British housing market has become too reliant on the owner/occupied sector. Whilst buying a home is to be encouraged there are people who have, in effect, been forced in to this. As with our continental cousins we need a more healthy and developed private rented sector. Taxation policy presents an opportunity to make changes to the tax system which will help improve PRS for the benefit of the nations economy.

About the author



The Residential Landlords Association (RLA) represents the interests of landlords in the private rented sector (PRS) across England and Wales. With over 23,000 subscribing members, and an additional 16,000 registered guests who engage regularly with the association, we are the leading voice of private landlords. Combined, they manage almost half a million properties.

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