ARLA News - Landlord's Tax Time Bomb

Landlord's tax time bomb

As the dust settles and the details of the Chancellor’s budget are unravelled and understood, the landlords’ tax position appears to remain in equilibrium.

However, the Help to Buy ISA was construed as a means to help first time buyers on to the property market and to compete against landlords who buy up smaller properties, advantaged by interest only mortgages not generally available to home owners.

The renting out of property by landlords is generally considered to be a business, and yet calls remain for interest on mortgages for Buy to Let to be a non-deductible expense for tax purposes; thus increasing the prospect of landlords paying further tax on their net rental income.

Many landlords, particularly those who have become so in recent years, already struggle to cover costs. Despite a low interest rate environment, the strength in the buy-to-let sector comes primarily from the capital growth and appreciation in the property values over time.

The tax on this long term growth also has anomalies, as again, although the renting out of property by private landlords is generally considered to be a business, the existing tax rules on Capital Gains Tax (CGT) do not extend CGT roll-over relief to private landlords; a tax relief that is available to businesses.

If roll-over relief were to be made available to private landlords they could rebalance their property portfolios by being able to sell one property and invest in another, without incurring capital gains on the sale of that property. This would also enable them to meet local housing needs and better resource their maintenance budgets,

By not granting CGT roll-over relief to private landlords, the oversupply of rental flats and rental properties at the lower end of the property chain cannot be released for first time buyers to purchase, without landlords getting clobbered for tax when wanting to rebalance their portfolios.

The removal of Capital Gains Tax taper relief in 2007, by the then Chancellor Alistair Darling, is also a ticking time bomb as many buy-to-let investors, who ploughed into property to shore up their pensions, will find they are clobbered for tax when they come to release the equity in their properties, and when they need the money in retirement.

David Cox, ARLA Managing Director said: "ARLA is calling for simple changes to tax policy, such as reduced rates of VAT on property improvements and being able to offset works against Income Tax rather than Capital Gains Tax (CGT) as well as changes to CGT such as roll-over relief and taper relief, (tax benefits already available to businesses) will allow landlords to cost effectively churn their portfolios to meet local housing needs and better resource their maintenance budgets. Recent tax changes, such as the abolition of the Landlords Energy Savings Allowance (LESA), has actually made it more difficult to finance maintenance and improvement works to their properties."

Shropshire's experienced Letting Agents and Property Management experts Nock Deighton aim to keep you informed of new legislation and information. Contact Dawn Clarke on 01952 290163 or [email protected] for expert advice on all Letting and Property Management issues.