The Private Rented Sector Landlords and Tax
Private rented sector consultant David Lawrenson of www.LettingFocus.com looks at calls for reform of tax in the private rented sector.
In last weeks’ blog I looked at the housing associations, private landlords and the case for housing associations to get involved in “market renting”.
In the course of that blog I also mused on the government’s increasing willingness to get institutional investors involved in private sector lettings – and how they had already made changes to the stamp duty land tax system and to REITs to try to facilitate this – though thus far there have been few takers.
Making more publicly owned land available at a subsidy for “build to let” or part “build to let” is also on the radar.
I mentioned too that landlords associations representing the UK’s 1 million plus “individual landlords” were also asking for changes to the tax system for private landlords.
The Budget, the Private Rented Sector and Tax
All these requests are to be expected. After all there is a budget just around the corner, so it would be kind of surprising if we didn’t see lots of requests for better tax treatment making their way into the media and, of course, onto the Chancellor’s desk.
The Residential Landlords Association (RLA), quoting a report by housing expert Professor Ball, believes there is a compelling case “for change to sustain a viable and responsive PRS where landlords will continue to invest in and improve property”.
They claim that “the tax system can be used to help stimulate the PRS, without losing the total of the sum of tax taken overall”.
The RLA calls for a number of changes to the tax system including roll–over relief for capital gains when gains are re-invested and / or when a property is sold to a first time buyer and an extension to the Landlords Energy Savings Allowance (LESA).
The RLA argue that tax relief should be targeted on facilitating investment in building improvements, urban regeneration and energy saving in the here and now. They are also absolutely correct to point out that, “Capital expenditure on a dwelling can currently only be offset against capital tax liabilities at a later date which inhibits investment.”
Of course, the counter argument runs thus, “If you improve your property, sure, you may not get any tax breaks for doing so right now, but you will get higher rents, which should be more than enough to pay off the investment”.
And of course, the large active anti-private landlord lobby will also point out that landlords can already deduct from their rents, the total cost of loan arrangement fees and interest on borrowed money used for their residential letting activities.
The “anti-landlords” point out that this gives landlords a lower cost of capital and hence an unfair advantage over other house buyers.
And that is also a valid argument too.
Fair and Unfair Taxes
Of course, what one person thinks is a fair tax system is anathema to another person. Just witness the furious debate over Vince Cable’s proposed mansion tax, for example.
Whatever one thinks, the fact is that the private rented sector is now big business and as such, it will inevitably attract ever more calls to tax it differently.
Those involved in the sector must accept this fact and realise that the sector has come of age and will be scrutinized more in the future. Anyone who saw it as a safer, more reliable and flexible haven of investment than the traditional pension may begin to rest less easy in their beds.
Whatever happens, one could hope that institutional investors and the small scale landlords will be allowed to compete on an even and fair taxation basis.
But I don’t think this will happen because the former have the power to build large numbers of properties and the latter doesn’t.
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