More taxing times for tenants as well as landlords?

Hiten Ganatra

October 18, 2021

Hiten Ganatra is managing director of Visionary Finance

The leader of the opposition, Sir Keir Starmer, made it abundantly clear recently that landlords would be taxed further if Labour came into office when he stated that money to pay for social care could have been raised through taxing landlords.

For those of us who are either landlords or work in the sector supporting them, such poor economics can be despairing at times and the results of increased taxation of landlords is already becoming clear, it’s the tenants who will ultimately suffer.

By way of a reminder, the Labour leader, speaking at the Local Government Association Labour Leaders’ Summit, said: “The government act like there was no alternative but there clearly was.

“The money could have been raised by taxing the incomes of landlords, and those who buy and sell large quantities of financial assets, stocks and shares.

“It leaves a private landlord renting out multiple properties not paying a penny more in tax, and their hard-working tenants to pick up the burden, it sees an Amazon worker’s taxes raised, but Amazon itself able to squirrel profits away in tax havens and only pay a fraction of what high street shops do, and it means our care workers aren’t given a pay rise but are expected to pay more in tax.”

The increased financial squeeze on landlords will undoubtedly adversely effect tenants, many of whom have no option but to rent. This is evidenced in RightMove’s Rental Price Tracker for Q2 2021 which showed national asking rents outside London reaching another record, and are now over £1,000 per calendar month for the first time.

Also, asking rents are 2.6% higher now than in Q1 2021 and 6.2% higher than this time last year, the biggest quarterly and annual jumps ever recorded by Rightmove. At the same time, there was an annual drop of 36% in the number of available rental properties.

These figures should come as no surprise, as landlords have seen their costs spiralling in recent years due to extra taxation such as:

· Tax relief on buy-to-let mortgages interest has been reduced. This financial year of 20/21 is the first full year where landlords can’t deduct mortgage expenses from rental income. An individual who has PAYE income of £36,000 per annum with rental income of £20,000 is now paying just over 90% more income tax*

· Capital Gains Tax rate when selling properties is higher for landlords (18% for basic rate taxpayers and 28% for higher and additional rate taxpayers) and more changes are mooted

· Private Residence Relief reduced in April 2020. Previously, if you lived in your property before letting it to tenants, you’d get Private Residence Relief when you came to sell.

This meant you wouldn’t pay any Capital Gains Tax for the time you lived in the property, plus an extra 18 months after you moved out. But under the new rules this has reduced to nine months. In addition, the £40,000 of lettings relief

· Stamp Duty surcharge for investors is an additional 3% on top of the usual Stamp Duty Land Tax rates

Also, let’s not forget the electrical safety standards imposed by the government this year and although this is a welcome change to improve standards the financial burden on landlords is increasing.

Plus we have had the tenant eviction ban and finally the EPC requirements, that meant from 1st April 2020, properties need to have a minimum of an “E” rating. Any in a “F” or “G” band, the landlord is legally required to invest in the property to improve the energy efficiency rating.

So why is the private rental sector seen as a potential vote winning area to target in order to raise monies for the government coffers? The latest Ipsos MORI Veracity Index (which is the longest-running poll on trust in professions in Britain, having been asked consistently since 1983) at the end of last year may shed some light on this.

According to the Index, only 37% of those surveyed trust landlords of private residential properties to tell the truth. They narrowly trail Local Councillors and Bankers (42% and 44% respectively) but are just ahead of Business Leaders, Professional Footballers, Estate Agents and Journalists (33%, 30%, 27% and 23% respectively).

However, 51% of the 18-34 age group trusted landlords, whilst only 21% of those over 65 did and so these differences may reflect what we are seeing from policy makers. Many of these are more likely fall into the older age profiles and may have outdated and hackneyed opinions of the sector – possibly stemming from experiences they had in their youth or influenced by older factions from their constituencies/party supporters.

A healthy rental sector is a fundamental part of the UK economy and it’s vital that politicians stop to think of the impact their ill-thought policy announcements are likely to have on the end customer, the tenant.

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