Positive changes to tax regime for landlords in the UK unlikely

The British Government is unlikely to get rid of the extra 3% stamp duty on additional homes which many landlords think hinders their expansion plans or to reverse the phasing out of mortgage interest relief.

In an official response to a petition that calls for the reintroduction of full mortgage interest relief and the abolition of the extra rate of stamp duty, the Government says change is not necessary and it stands by the original aim of levelling the field between landlords and first time buyers.

The measures were introduced because of concerns that buy to let landlords were preventing first time buyers from getting on the housing ladder. But many landlords, and organisations like the Residential Landlords Association (RLA) have argued that they are a financial burden at a time when the private rented sector needs more homes and landlords costs are rising.

Indeed recent research from the RLA found that 69% of landlords are put off investing further because of the 3% stamp duty levy. It is supporting an online petition that has now attracted more than 14,000 signatures which means that the Government issues a response. If it reaches 100,000 by the end of the timescale in November it should be debated in Parliament.

But at the moment it is not having much of an impact on policy. ‘By restricting landlord’s finance cost relief to the basic rate of income tax we are helping to reduce the advantage landlords may have over homeowners in the property market. Income tax relief for finance costs is not available to ordinary home buyers. It is also not available to those investing in other assets, such as shares, so we’re helping to reduce the distortion between property investment and investment in other assets,’ the official response says.

‘Previously, landlords could get relief on their finance costs at their marginal rate of income tax. By restricting finance cost relief to the basic rate, all individual landlords will receive the same rate of income tax relief on their finance costs. Landlords can still claim income tax relief at their marginal rate of tax on day to day running costs incurred in letting out a property, such as letting agent fees and replacing furniture,’ it adds.

It also dismisses the argument that the tax change will affect the housing marker adversely. ‘Given that only a small proportion of the housing market is affected by this change, the government does not expect it to have a large impact on either house prices or rent levels. The Office for Budget Responsibility (OBR) also expect the impact on the housing market will be small,’ it points out.

Regarding the 3% stamp duty for additional homes, the Government continues to argue that second home buyers and buy to let landlords do have an impact on other people’s ability to get on to the property ladder.