Landlord Loss of Tax Breaks

The tax advantages that landlords get have long been a bone of contention for those currently in the lettings sector who are looking to get a foot onto the housing ladder. At the moment, if you’re a landlord, you’re entitled to tax relief that can amount to 40% or even 45%. However, as a result of the chancellor’s Autumn Statement this year, that is likely to drop to just 20% from 2017. It’s worth pointing out that if you’re a ‘normal’ buyer then you don’t have access to this tax relief at all.

Given that offering tax relief on a purchase means people are more likely to make that purchase – as well as the fact that landlords get better mortgages than other buyers – it’s perhaps no surprise that the numbers of buy to let purchases have soared while first time buys have not. According to the Bank of England, lending to landlords rose 10% in the first nine months of 2015, while lending to those in owner-occupied properties just 0.4%.

The Bank of England also made the point that all this lending going to landlords was not particularly beneficial for the UK economy, pricing other buyers out of the market and filling our renting sector to bursting by adding those who would rather buy into the mix with those who are committed to renting. However, despite this, a group of landlords in the UK is challenging the move to reduce its tax relief, which it seems as victimisation.

So, we now have a situation where a group representing 250 landlords is launching a legal challenge against the reduction in tax relief, arguing that it breaches human rights legislation and European law. For most tenants, already sick of paying overly high rents to (in some cases) landlords who don’t keep up with repairs obligations and deposit protection rules, this may sound rather laughable. However, there could be some serious knock on effects for the renting sector, the principle one being that, instead of taking the hit themselves, landlords pass on their losses to tenants in the form of pushing rents even higher.

We have unfortunately created something of a monster in the UK renting sector in that many landlords now believe they are entitled to the tax breaks and entitled to charge rents that are way above anything else in most of Europe. We have also created a dependency – as a result of rises in house prices, some landlords need to charge high rents to see any profit at all.

So, it’s a difficult situation summarised by the Institute of Chartered Accountants as follows: “Some landlords will pass on their increased tax by increasing rents. Others will be forced to sell, as they will not be in a position to pay the extra tax demanded by HMRC. Homelessness will increase as some tenants will not be able to afford higher rents and many will be evicted by landlords forced to sell.” While this sounds a little dramatic to us at TTV, it does highlight the downsides for tenants of this move. The hope is that those properties that become available as a result of the loss of tax relief can then be snapped up by first time buyers, reducing the rental sector in size and letting more of us into the housing market, lessening the stranglehold that landlords have. That’s the predicted theory anyway – but when has the UK housing market ever behaved as anticipated?

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