Budget: ‘Populist’ cut to landlord tax relief not a ‘great leveller’

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The Intermediary Mortgage Lenders Association has labelled the Chancellor’s cut to buy-to-let tax relief a “populist” measure that will not be a “great levelling of the playing field” for homeowners.

In his Budget speech today, George Osborne said the higher rate of mortgage interest relief would be withdrawn gradually over a four-year period from April 2017.

Mortgage interest relief will still be available for landlords but it will be restricted to the basic rate of income tax.

Osborne said: “We will create a more level playing field between those buying a buy-to-let and those who are buying a home to live in.”

But Imla executive director Peter Williams believes the measure was brought in to appease certain groups – particularly elements of the national press – that have campaigned for the removal of tax relief for landlords.

He adds: “Reducing landlords’ mortgage tax relief is likely to prove a populist measure but the idea that tax benefits have been a big driver for growth in the private rental sector is flawed.

“Unlike homeowners, private landlords are still subject both to capital gains tax and tax on rental income, subject to allowable deductions for most costs. It also overlooks the fact that two in three properties entering the private rental sector since 2007 have done so without the support of buy-to-let mortgages.

“Anyone expecting this change to result in a great levelling of the playing field in the housing market is destined to be disappointed.”

OneSavings Bank sales and marketing director John Eastgate says: “I think this is more of a response to commentary in the public domain and in the press than something that is [meant to have] a material impact on the market.”

However, as the measure applies to individuals, it has been suggested more landlords could look to hold their properties in limited companies.

Blick Rothernberg Chartered Accountants partner Nimesh Shah says: “What’s interesting is that the restriction applies to individuals owning properties and companies are not affected.  With a further reduction in the main rate of corporation tax, companies may become even more popular structures for buy-to-let landlords.”

During the Budget Osborne noted the Bank of England’s concern that buy-to-let, which accounted for 18 per cent of new mortgages in the first quarter, could pose a risk to financial stability.

Osborne said: “So we will act, but we will act in a proportionate and gradual way because I know many working people who save and invest in property depend on the rental income they get.”

Precise Mortgages managing director Alan Cleary say the actual proposals were not as bad as they could be but that it signalled the start of policymaker intervention in the buy-to-let sector. The Government has to regulate so-called ‘consumer landlords’ to comply with the Mortgage Credit Directive.

Further, the Financial Policy Committee has asked for the power to curb buy-to-let lending. The Treasury will consult on this later in the year.

Cleary says: “It could have been worse but buy-to-let is now on the political agenda. You have seen the first move to contain it. This is just the start of more Government and regulatory intervention in the buy-to-let market.”