A detailed report from Propertymark has revealed the damage done to the private rental sector by taxation that has hindered investment and contributed to significantly higher rents.

Titled ‘The Impact of Section 24 on Buy-to-Let Landlords’, the report examines the impact of Section 24, which was implemented by then chancellor George Osborne to cut the available tax relief on mortgage interest costs and end the 10% wear and tear allowance for fully furnished homes.

This has impeded many investment opportunities because investors can no longer offset finance costs against taxes in the same way. Effectively Landlords are paying tax against a gross rental income less maintenance costs.

Consequently, many landlords are shouldering higher taxes, with many only just breaking even or being placed in loss making positions. This has impacted standards and left the proposition of providing high quality homes a more financially unsustainable prospect.

This has also led to many landlords having to consider a wide range of coping strategies in response to Section 24, such as unfortunately passing increased costs onwards in the form of increased rents.

Furthermore, the report highlighted the impact of tighter maintenance budgets because of more squeezed cash flows, with direct consequences that have the potential to adversely affect tenants.

Further concerns remain that landlords may consider reducing their portfolios, leaving the sector altogether, halting their portfolio expansions, and/or look at other sectors they may prove more sustainable for the long term.

Landlords stated that they are concerned about the Renters Reform Bill, which will be carried forward by the UK Government under the new guise of the Renters Rights Bill.

Moving forward, the report recommends that taxes on extra properties and capital gains tax thresholds should be cut, with a goal of promoting long-term investment in the private rented sector.

Nathan Emerson, CEO at Propertymark, said: “Section 24 is having an impact on the private rental sector, and with a budget being announced for October, Propertymark are keen to see the UK government to consider scrapping this measure. We need to see a level of support that encourages long term investment within the Private Rented Sector and recognises the understanding that private landlords play a crucial role when comes to providing diverse, safe and secure housing across the entire UK.”

A link to the report can be found here.