IDS calls for review of BTL tax changes – reaction

Ryan Bembridge

July 25, 2017

Iain Duncan Smith has called for a review into buy-to-let tax changes – which he said are putting off investors from providing housing which the private rental sector needs.

Writing in political blog website Conservative Home, the former Tory leader and Secretary of State for Work and Pensions declared that everyone should be concerned that investors are being put off by measures designed to dampen down the market.

Duncan Smith (pictured) wrote: “It is time to review [ex-Chancellor George] Osborne’s tax changes on buy-to-let landlords.

“A large number of them are talking about no longer buying-to-let, and they blame it on George Osborne’s decision to impose a stamp duty levy on the purchase of homes to rent, to restrict mortgage interest relief to the basic rate of income tax, and to tax a landlord’s turnover rather than profits.

“This, they believe, has led to private landlords scaling back their operations or even leaving the sector altogether.

“We should all be concerned about this, because private landlords are a significant provider of the additional housing we need.”

His article was warmly received by some commentators.

Ray Boulger, senior technical manager of John Charcol, said: “Iain Duncan Smith has come out of the woodwork and said something that many think is very sensible.

“It’s a dangerous slope to start taxing on income rather than profits – where do you draw the line?”

David Hollingworth, associate director of communications at London & Country, suggested penalising landlords may have gone too far even if there was some cause to discourage them from buying the same properties as first-time buyers.

He said: “The changes were designed to deal with what they saw as a booming market.

“However buy-to-let’s been hit on several fronts – I think the difficulty is finding the right balance.

“Balancing landlords and first-time buyer demand is important but the numbers have been decimated on buy-to-let – they’ve not just evened off or pulled back a bit.”

Kate Faulkner, property analyst, didn’t have a problem with the 3% stamp duty surcharge but wasn’t impressed with the gradual reduction of mortgage tax relief happening every year.

Currently landlords can only deduct 75% of their mortgage interest from their rental income when working out their taxable profits and this will be cut to 50% next April, 25% the year after and finally in 2020 they will be taxed on all their income.

She said: “Any government that introduces tax changes that can mean some people can be paying more in tax than net income is ridiculous unless they are prepared to put their hands in their pockets and build more social homes.”

The industry isn’t banking on there being an imminent review of buy-to-let despite Duncan Smith’s comments.

Faulkner added: “I don’t think they will review it because they will be too nervous and too distracted by Brexit.

“Also I think it’s too late.”

Hollingworth added: “Tax relief changes only came in in April so what is there to review so far?”

But he said: “It could be the opening to a change of tone.

“A lot of people would agree that housebuilding targets, which are ambitious but seemingly missed on a regular basis, will mean demand for decent quality rental property is not going to wane in the near future.

“Therefore there will be a need for the private rental sector to play its part.

“Anything worse for landlords will make things bad for tenants and therefore first-time buyers.”

Duncan Smith’s blog also called for landlords to get VAT relief on conversions or even capital allowances.

This kind of move – where the government would give something back to landlords who boost new stock – is what Faulkner agreed is most palatable for the electorate.

She said: “They have backed build to rent which I am supportive of and they should look at supporting landlords who take commercial property and turn it into a rental stock or new build properties.

“They should gain some capital gains tax relief or a lower rate.

“Landlords need something back and if you’re backing anything it should be landlords that are willing to bring in new rental properties.

“If they take a property that is empty or not mortgagable and bringing that back to life the same rules should apply.”

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  • Arron – Temple Capital

    In my view, the stamp duty and income taxes pale in comparison to the new PRA rules, which I believe will cause a tidal shift in the attitude toward being a landlord in the UK.

    The ability to get 75% loans in the South East has greatly diminished and the time to source a BTL mortgage has doubled or trebled. For many, the choice is high income yields and low capital yields outside the South East with a 25% deposit or vice versa with a 40% deposit.

    Most brokers predominantly deal with residential owners with perhaps 1-3 BTLs and so they may decide it is no longer worth advising portfolio landlords, even with an enhanced proc fee. I am know I am deliberating taking on any new portfolio landlords.

    It is unlikely brokers they will want to refer to a rival firm and may suggest clients who are not dependent on the rental income to reduce their exposure. Of course, we will see a growth in firms that specialise in portfolio landlords, but perhaps in to a dminishing market.

    All of this is happening at a time when there is a shortage of mortgage brokers and few firms training new ones.

    Thereon, a diminishing landlord market will reduce the competition for newbuild property as landlords make up around 13% of the market. This will mean developers earn less per unit, but also may discourage them from bringing forward more land. It is believed that many developers are deliberately holding back development to keep the prices high, so this will be exacerbated and so deepen the housing shortfall.

    Do not get me wrong as this is not to say I am against any of the changes, asI am not a believer in a “housing crises” and it may well cool house prices for the new buyers, but I do wonder if the PRA and Government will be happy with the results of their tinkering.

    An answer to many of the UK’s housing and infrastructure issues is to shift the focus away from London and spread out economy more evenly across the country, so perhaps this is all part of a bigger plan?

  • Barry

    At last the dawning of some sense from a senior Tory MP, hopefully he can persuade the Government to change policy on the taxation of Sec.24