Question: how does increasing tax on landlords help tenants? (Answer: it doesn’t)

Honestly, some very odd comments on the ways the tax changes will impact on landlords: here’s a prize from the Office for Budget Responsibility, the body that monitors Treasury activities and ensures feasibility of tax policy in economic terms:

“It is expected that 1 in 5 individual landlords will receive less relief as a result of this measure” Read the context of this statement here in a Government document:  https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

So, this presumes that only 20% of landlords are either buy-to-let owners, and simultaneously are higher rate tax payers (as it is only higher rate payers that are affected) – but remember, if you earn, say £35000 per annum from your main job, then the average rent on a Leicester rental property at, say, £600 per month, automatically makes you a higher rate tax payer as you will now be taxed on that as income (you are no longer to be taxed solely on the profit on your rent after mortgage interest relief).

There is comment elsewhere in the press that very few landlords are only basic rate taxpayers, so how the OBR can make a statement like this is bizarre.

I think the OBR analysis is simply wrong; it’s very hard to be definitive without certain knowledge of the numbers of local landlords in Leicester who are buy-to-letters – but from my agency I know of very few clients that are in the privileged position of having no borrowings; it was after all a social and financial policy of Government for two decades to encourage investors to get into buy-to-let.

As Property 118 commented (a very useful resource for landlords, particularly those of a belligerent streak as this site campaigns stridently on a number of issues: Incredibly, the report by the Office for Budget Responsibility, which accompanied the Summer Budget took no account of tenants as an impacted group and also stated the policy was ‘not expected to have a significant impact on either house prices or rent levels…This is a preposterous statement.(http://www.property118.com/uk-rents-set-sky-rocket-osbornes-tax-grab/83275/)

I have to say that I agree with Property 118: landlords will have to push up rents to cope with the losses that they are facing over the next four to five years. But only if they can – the impacts are far too huge to be capable of recovery.

In the interests of balance, there are alternative views of course: here’s Graham Norwood, respected property journo, in his predictions for the property market in 2016 (as repeated in the Daily Mail if you want to read that version):

  1. There Will Be More Buy To Let Landlords, Not Fewer:Siren voices saying landlords will quit over tax breaks, stamp duty or greater regulation will have proven wide of the mark. Sure, BTL will be tougher than before but with the proportion of households privately renting set to rise to 29 per cent by 2020, why would landlords leave now? (https://www.estateagenttoday.co.uk/industry-views/2015/12/you-read-it-here-first–what-to-look-for-in-2016)

Well, the reason why could be that (for some) an asset that makes a loss every month soon becomes pretty unattractive. The counter argument is that rents will have to rise to cover the losses going in tax, and there’s the rub for tenants – neither the landlord nor the tenant gains from the tax grab.

Of course, rents can’t rise inexorably to cover the potential losses (and in my view landlords shouldn’t be able to expect them to do so). By my calculation an average property (average mortgage/average loan-to-value) in Leicester renting at around £635 a month would have to be let at £1100-plus in 2021 for the landlord to stay broadly where they are now, if base rate has risen by then to just 2%. That is a simply impossible rent to conceive of Leicester tenants being able to cover, taking any reasonable view of wage increases over time.

The Institute of Chartered Accountants in England and Wales commented: As a consequence of the tax change, major changes in the private sector will take place. Some landlords will pass on their increased tax by increasing rents. Others will be forced to sell, as they will not be in a position to pay the extra tax demanded by HMRC. Homelessness will increase as some tenants will not be able to afford higher rents and many will be evicted by landlords forced to sell”.

That seems like a fair summation of the situation: some landlords will pass on cost rises if they are able, others will be forced to sell up. In either case, it doesn’t seem helpful to tenants. Talk to us or respond to these posts if you want an analysis of how the changes are likely to impact on your situation.

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