Is a Complete Tax Overhaul What we Need to Save the Rental Sector?

A combination of high interest rates, increased regulation and uncertainty caused by delays to renting reforms has seen a significant increase in the number of landlords selling their rental properties—and this is leading to issues when it comes to families finding affordable housing.

Official figures released earlier this year found that more than 2,000 households per month are facing homelessness because their private landlord is selling up. What’s more, a survey conducted by the National Residential Landlords Association (NRLA) found that a third of landlords are planning to reduce their portfolio, versus just 9% planning to increase it.

With this in mind, is a complete tax overhaul needed to save the rental sector? Back in September, letting agents group Propertymark outlined six changes they wanted to see in order to support private landlords and stave off a declining number of available rental properties.

1. Review the tax burden on private landlords and seek to develop policies for promoting long-term investment, and ultimately reducing costs for tenants.

2. Reinstate mortgage tax relief for private landlords operating in their own name, leveling the playing field with those landlords who set themselves up as a business.

3. Reduce taxes on additional properties. For example, individuals are required to pay stamp duty on the full value of an additional property compared to first time buyers who are only required to pay stamp duty on property value above £425,000. In England and Northern Ireland, a buy-to-let landlord purchasing an additional property for £290,000 (UK average house price) they’ll be required to pay £10,700 in stamp duty.

4. Reinstate tax relief for the cost of making their properties energy efficient, which has the added benefit of reducing tenants’ bills.

5. Reduce Capital Gains Tax thresholds for private landlords to bring them into line with other asset classes. Landlords were excluded from the Capital Gains Tax cuts instituted in 2016, meaning private landlords are subject to a 28% tax on gains, compared to 20% for other asset classes.

6. Avoid instituting rent controls and promote flexible tenancies.

These proposals were put forward prior to the UK general election which say Labour come to power with a landslide, and time will tell what Sir Keir Starmer’s government has in store for landlords and legislation governing the rental sector.

The Conservative Party manifesto had included a proposal to give landlords 100% tax relief on Capital Gains Tax if they sold their properties to existing tenants, helping both landlords and first-time buyers, but there’s currently no plans for Labour to replicate this policy.

What to do next if you’re a private landlord

If you’re a private landlord, ensuring you’re as tax efficient as possible is essential to making the most of your investment.

Here at Warr & Co we offer accounting services for landlords that can ensure you stay tax efficient, but also compliant with your legal obligations. Whether you’re a professional landlord that makes their living from rental properties, or you have a sole additional property as a side business, our expert team can help.

To find out more about how we can help you manage your landlord accounting, why not book a free, no obligation consultation? We’ll take the time to understand your current circumstance and recommend how we can help.

Alternatively, if you simply want to ask a question or chat to one of our specialist landlord accountants, you can get in touch here.