Chancellor Jeremy Hunt must offer support to landlords when he delivers his autumn statement on Wednesday, says Neil Cobbold, managing director of PayProp UK.
He points out that many landlords have struggled to cope with increased interest charges on buy-to-let mortgages – even to the point of making their rental properties unviable.
Cobbold notes that while some landlords are selling their properties to fund their retirement, others are facing high mortgage costs, increased regulation and a heavy tax burden, which threatens to put them in an untenable position.
Currently, under section 24 of the Finance Act 2015, all rental income made from a property is taxed – landlords can partially claim back mortgage interest costs, but only up to the basic tax rate of 20%.
Cobbold commented: “Many have called for the abolition of section 24, but it seems unlikely that the chancellor is going to consider it this time around – even though it creates an incentive for higher-rate taxpayer landlords to incorporate their properties as a way to claim mortgage costs as an expense and pay corporation tax at 25%, rather than the 40% or 45% personal tax rate on their rental income.
“As a result, some landlords are now selling their properties.”
Cobbold suggests that the chancellor should incentivise landlords that need to reduce their stock to sell to other PRS landlords.
“To achieve this, the chancellor could reduce capital gains tax for landlords who sell their properties to other landlords who commit to keeping it in the PRS for a fixed number of years.”
A measure like this would also stimulate the sales market to some degree, but the main advantage would be in retaining as many properties as possible in the rental market, Cobbold says.
“What we don’t want to see is an influx of owners shifting properties to holiday lets, second homes or keeping them empty for asset appreciation,” he adds.
It’s evident that the government’s stance on non-institutional landlords in the private rental sector (PRS) has been a source of frustration. The reluctance to encourage transparency in properties not under the umbrella of housing associations or institutional investors has created a murky management landscape, challenging for the government to quantify and audit.
For years, resistance to initiatives that would provide full transparency in the PRS has been apparent. The SA105 Land and Property tax, essentially an opt-in tax, lacks sufficient participation from landlords. Addressing this gap is crucial for comprehensive oversight.
Acknowledging the skepticism around technology, I’ve personally developed a Schedule 23 reporting system that identifies data holders. In 2012, I shared insights with the chair of a PRS inquiry on how to identify all private rented properties. The solutions, surprisingly, are straightforward and entail minimal, vanilla changes to legislation.
Despite these efforts, there remains a prevailing mindset that private landlords are problematic, and changing this perception may prove to be a considerable challenge.
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