A decision by Ireland to reverse its policy preventing residential landlords from claiming full mortgage interest tax relief on their rental income should send a powerful message to the UK, according to campaigners.
Britain is due to introduce a similar policy in April 2017 which is widely opposed by landlords, trade organisations and tenants amid warnings that is will lead to rent rises and a contraction in the number of homes to let.
A campaign called Axe the Tenant Tax was set up to legally challenge the policy announced by former Chancellor George Osborne which is due to be introduced in stages from next year but the application was rejected by the UK’s High Court.
Now the campaign, which is continuing to lobby the Government to reverse the policy, said what is happening in Ireland should send a clear message to current Chancellor Philip Hammond that he needs to address the issue and make a U-turn in his Autumn Statement next month.
They want Hammond to take on board was Irish Finance Minister Michael Noon said in his Budget statement last week. Noon announced that landlords will be able to claim 80% tax relief from next year, up from a current level of 75% and tax relief will then increase by another 5% each year until it reaches 100% again.
Steve Bolton, founder of Platinum Property Partners, who is one of the lead campaigners in the UK, explained that the Irish Government first imposed this type of policy in 1998 and as a direct result, rents increased 50% over a three year period. The policy was then abolished in 2002 before being introduced again in 2009.
‘The fact that the policy has again been reversed should send a very clear message to the British Government. Illogical over taxation of private landlords will not solve the housing crisis nor make it easier for people to get onto the property ladder. Increased rents for tenants and less available rental properties will only make it harder for people to save for a deposit,’ he said.
He also pointed out that in Ireland, on both occasions, the policy only affected new buy to let purchases whereas Section 24 of the Finance (No.2) Act 2015 which introduces the new tax regime in the UK is retrospective. ‘So the impact could be even more devastating here for the private rented sector as a whole,’ he added.
The Axe the Tenant Tax campaign, which represents 150,000 landlords, wants the UK Government to abolish the tax change or at the very least, remove the retrospective nature of it. ‘We are collaborating with hundreds of thousands of landlords, associations and organisations to lobby MPs and encourage everyone operating in the sector to get involved,’ said Bolton.
‘After all, if the Prime Minister wants a country that works for everyone, then she should recognise that Section 24 works for no one, especially tenants. And the Irish example proves this,’ he added.
David Cox, managing director of the Association of Residential Letting Agents (ARLA) also believes that the news that Ireland is reversing cuts in mortgage interest tax relief for landlords, demonstrates the policy simply did not work in the first place.
‘It increases landlords’ costs, which leads to constricted supply as landlords drop out of the market, and increased rental fees for tenants. The British Government needs to reconsider its similar changes that it announced at the Emergency Budget in 2015 and revoke what is clearly a damaging policy. The fact that the measure has been tried and shown to fail in Ireland should be the proof the British Government needs to reconsider its stance on this issue,’ he added.
A U-turn would have a positive impact on housing supply which has reached crisis levels in some parts of the country, according to Paul Mahoney, managing director of Nova Financial. ‘The outcome in Ireland of the landlord taxes of rents rising significantly and less people investing is logical, if you tax something you get less of it. This resulted in a lack of supply in an already undersupplied market,’ he explained.
‘The Irish government realised they made a mistake and this is a perfect case study for the new Chancellor to consider for his Autumn Statement and future policy. Reversing the changes would positively impact the supply of housing in the U.K. which is one of the government key goals. Working with landlords rather than against them would be a positive move for UK housing,’ he pointed out.
Michelle Niziol director of IMS Property Solutions, a specialist mortgage advisory, lettings and property investment management group, is currently taking part in the popular TV show and is backing the campaign.
‘There is a growing trend for investment in buy to let property as part of long term family financial planning, be that in place of a pension or as trusts for younger generations. For those investors, changes to the mortgage interest tax relief is an annoyance, but they are not generally in it for short term cash gains. The people who are really going to feel the impact are the individuals who are looking to build small to medium sized portfolios,’ she explained.
‘These are people who want to become semi-professional landlords and use their properties to give them a monthly income. For them it is going to be a case of having to be cleverer with how they buy and what they invest in. Rather than buying finished products, they may find they are better off buying properties that need work so that they are spending less up front and adding value by renovating,’ she added.
The campaigners point out that the tax change will leave higher and additional rate taxpayers in particular trouble. Many could fall into loss making territory, particularly if they have large mortgages and don’t receive much rent relative to the cost of their properties.
Research also suggests that many standards rate tax paying landlords will be propelled into the higher bracket and the outcome of the change will not only be higher rents for tenants but landlords deciding not to increase their portfolios and even selling some of their properties to reduce their tax liabilities.
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