Measures to be introduced by the Treasury following the 2015 Summer Budget and a new majority conservative government could prompt a spate of rent rises, that’s according to new research by the Residential Landlords Association (RLA).
The RLA claims that their research undermines the Government’s case that its changes to the way landlords are taxed will not increase rents. Initial findings from a survey of landlords by the RLA indicates that 65% of landlords are considering increasing rents as a direct result of the Budget.
The measures to be introduced and announced by the Chancellor earlier this month indicate that that (1) Mortgage Interest Relief for residential landlords will be restricted to the basic rate of income tax, and that (2) the blanket 10% wear and tear allowance normally applied to fully furnished accommodation will no longer be allowed.
Although the mortgage relief measures will be introduced gradually over a 4-year period from 2017 and the scrapping of the wear and tear allowance will start after April 2016, both these measure are likely to have an impact on the profitability of buy-to-let.
The RLA’s findings, they claim, undermine HM Revenue and Customs’ assessment that these measures will have no significant impact on rent levels.
As MPs prepare to debate the Finance Bill, and with the Chancellor also being questioned on his plans by the Treasury Select Committee, the RLA is warning that the basis of the Budget assumptions is wrong.
The Chancellor had argued that landlords are taxed more favourably than home owners. Both the Institute for Fiscal Studies and the Conservative’s favourite think tank, Policy Exchange, have warned that this is not correct. Unlike home owners, landlords are taxed on rental income and capital gains.
Commenting on the revelations, Alan Ward, Chairman of the Residential Landlords Association has said:
“The reality is that the Chancellor’s belief that rental property is taxed more favourably than home owners is simply not correct.
“Rather than supporting the sector to provide the vital homes needed to support a flexible labour market, today’s Finance Bill will choke off supply and drive up rents.”
Mr Ward continued:
“The belief that landlords should be compared to home owners is like comparing apples with pears. The two are vastly different.
“It’s time the Treasury recognised residential landlords as a business.”
- HM Revenue and Custom’s assessment of the impact of the decision to restrict Mortgage Interest Relief to the basic rate of Income Tax is available here It argued that it is “not expected to have a significant impact on either house prices or rent levels due to the small overall proportion of the housing market affected and the offsetting impact of wider budget measures.”
- On the 9 th July, Paul Johnson, Director of the Institute for Fiscal Studies gave his reaction to the Budget, available here He said, “The tax treatment of rental housing will be made less attractive though. At present if you own a property which you let out to tenants you can set any mortgage interest costs against tax due on rent received. The Budget red book states that this means that “the current tax system supports landlords over and above ordinary homeowners” and that it “puts investing in a rental property at an advantage”. This line of argument is plain wrong. Rental property is taxed more heavily than owner occupied property.”
- Policy Exchange, has confirmed this noting that: “In truth, the tax system massively favours home ownership – for one thing home owners do not have to pay capital gains tax on their principal residence, whereas buy to let landlords do on the rental properties they sell. Rental income is also taxed (and even more now).” (Source here ).
- 1,146 landlords responded to a survey question asking how they were considering responding to the tax changes announced in the Budget. 748 indicated that they were considering increasing their rents – 65.27%.
Summer Budget Prompts Landlords to Raise Rents – http://t.co/jqtDiIL7HI
— LandlordZONE® (@LandlordZONE) July 24, 2015