The recent election delivered more questions than answers. Theresa May’s mandate for the Conservative government’s long-term plan on a variety of issues is now in doubt. While Brexit remains top of the agenda, there are still problems with housing. Now, the minority government is being urged to rethink how landlords are taxed.
Iain Duncan Smith Speaks Out
One of the most vocal critics of the present philosophy on landlord taxation is the former Department of Work and Pensions Minister Iain Duncan Smith. He explained how felt that attacking landlords (especially the small-scale owners) was the wrong way to go about solving the problem of affordable rent.
George Osborne who was replaced as Chancellor of the Exchequer in 2016 following Theresa May’s succession imposed stamp duty the purchase of homes for rent. He also restricted mortgage interest relief down to the basic rate of income tax. Thirdly, he introduced a measure to tax landlord turnover instead of profits. In the wake these measures, many decided to sell their rental property and find other business ventures. He suggested that the government should consider introducing VAT relief on conversions and capital allowances. Realising the housing shortage, he recommended a New York style tax levy on empty buildings too.
Don’t Blame the Private Rented Sector
David Miles, once on the Monetary Policy Committee for the Bank of England, echoes his sentiments. He claimed that the tax measures will lead to higher rents for tenants, counterproductive to what the government says it is trying to achieve – deliver a long-term and sustainable plan for affordable homes for everyone.
He did comment that the Help To Buy Scheme is largely a useful tool to help people buy, especially in tying the repayments to the value of the home. However, he too commented negatively on the changes to the Stamp Duty Levy. Buyers pay 3% on any second home / buy to let property up to a value of £125,000, 5% on properties valued between £125,001 and £250,000, 8% on properties valued between £250,001 and £925,000. Finally, any second property over the value of £925,001 incurs a Stamp Duty of 13%.
Myths Challenged
In a government report released this week, it was revealed that over 2/3 of private landlords in the UK pay only the basic rate of tax. 30% paid the higher rate of tax and a tiny 4% paid the additional rate of tax – the highest rate available. Landlord groups pointed to this information as dispelling the myth of the rich landlord. Now, it appears that landlords pay more tax than homeowners – something that could have negative effects on the rented sector as costs get passed on to tenants. In light of the report, the RLA called on the government to scrap the tax on turnover and reinstate tax on profit.