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Call on Chancellor to Change Landlord Taxation

From Robert Ulph on February 21, 2020

Prior to the Cabinet reshuffle last week which saw Rishi Sunak replace Sajid Javid, as Chancellor, ARLA Propertymark had submitted suggestions to HM Treasury on new policy ideas to be included in the 2020 Spring Budget.

I hope the new Chancellor is open to these, as among other points, suggestions were that Government abolish the additional 3% stamp duty on second properties, including buy-to-let, and to undertake a comprehensive review of all taxation on private landlords.

The private rented sector (PRS) is the second largest housing sector, after owner occupiers, and depended on by many for their housing as well as relied on by Government for provision of homes across the country. Yet when the 3% surcharge was introduced in April 2016 it brought with it many disadvantages across the housing market. Many in the industry would argue that it has contributed to a stagnation of the PRS and the Intermediary Mortgage Lenders Association estimated that buy-to-let investment fell from £25 billion in 2015 to £5 billion in 2017.

Additionally, the 3% surcharge contradicts Government policy to help first-time buyers, who are usually exempt from stamp duty up to £300,000, but penalised if they buy their property through a Guarantor Mortgage. Typically, these mortgages are guaranteed by family members who will often be a homeowner themselves and who will not live in the purchased property, which means the additional stamp duty is applied.

The revenue implications for HMRC, ARLA Propertymark argue from abolishing the 3% surcharge on additional properties will encourage further investment into property. The surcharge has been a valuable source of income to the Exchequer, but it has also resulted in a drop of sales on second and buy-to-let property which contribute towards the economy in tax amounting through letting activities, as well as providing homes to those who cannot afford to, or do not wish to buy their own.

ARLA Propertymark also state it will cement the Government’s intention to help first-time buyers by exempting Guarantor Mortgages from being subject to a surcharge of stamp duty with 25% of housing transactions involving lending from family.

As well as scraping the 3% surcharge, the call is to review all taxation on private landlords because the phasing out of tax relief on mortgage interest and the repercussions of the Tenant Fees Act means that costs are significantly increased and many landlords can no longer make ends meet. Increasing the financial burden on landlords inevitably results in falling investment and costs being passed to tenants through higher rents – in December 2019 it was found that 32% of ARLA agents witnessed rent increases, up from 16% two years earlier.

Government must review all the taxes relating to private landlords to develop policies that promote long-term investment in the sector and reduce costs for tenants and the new Chancellor has that opportunity in his Spring Budget.

As always, if you have any questions on these issues or anything in the local property market, please call me.