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David Miles: Distorted tax system favours homeowners over renters

External monetary policy committee member David Miles says the tax system favours homeowners over renters and suggests policymakers look at ways of addressing this “distortion”.

In a speech made in York yesterday, Miles said that although banks may become less risk averse in their lending in the future, they are unlikely to again offer the levels of high LTV mortgages that were sold pre-2007.

As a result, he says individuals will continue to have to save higher deposits, meaning they will typically buy a home later in life and so levels of home ownership will continue to be suppressed.  

However, he said “it is not at all clear” that lower rates of home ownership are a “big loss to society” and suggested that policymakers look at ways of addressing a tax system that currently favours homeowners over renters.

He said that while homeowners pay no tax on the benefits derived from having a place to live, landlords pay tax on rental income while capital gains tax is not levied on owner-occupied first homes but is on capital gains made on rented property.

He highlights that tax incentives against renting are least when the rental property is financed with debt, as landlords can offset interest paid on loans against rents received when calculating taxable income, but says in any case the tax system creates incentives which work against renting.

He said: The natural way of addressing the tax distortions is to change the tax treatment of rental versus owner-occupied property. The recent Mirrlees Review describes how this might be done. But changing the tax system is not easy. Losers are invariably created.

“No one should expect change to come quickly. But so long as the tax system favours owner-occupation we should recognise that – other things equal – this will make the owner-occupation rate inefficiently high. That needs to be born in mind when we consider how changes in the availability of mortgage finance for owner-occupiers might be reducing the owner-occupation rate.”

Miles suggested that lower owner-occupation levels will lessen the impact of interest rate changes, increasing economic stability, and improve labour mobility.


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. i think somebody owns property outright that he rents out and is miffed he can’t offset the tax on the income!!!!!

  2. When I first saw this headline I thought ‘What?. People renting get taxed more than people who own their homes?’ Not; that its ‘awfully unfair that a speculator has to pay CGT’. A Buy to let is an investment. Investments get taxed. Get over it.

  3. Unbelievable!, the reason rent are high is a shortage or property and that BTL landlords can or could obtain loans that could easily be covered by rental income. What should happen is that greedy landlords should pay more tax on the rental income and capital gains (only 18%) from property and more affordable homes should be built.

    The tax that was forgotten about here on homeowners is of course Inhertitance tax and forced sales to pay for long term care.

    Why should anybody pay tax to buy and live in their own home? Get real.

  4. …so landlords get taxed on their rental income (which can be offset by mortgage interest!).

    and this is favours homeowners how? The interest paid on a mortgage is taxed on the lender – same principle isn’t it?


  5. Absolutely.

    Investments should be taxed.

    In this case, the system is clearly biased in favour of the landlord as this type of investment has been favoured over others in the last decade or so to such an extent that it has lead to a falsely inflated model which excluded almost all genuine buyers from the market and in turn has also lead a hiatus at all property purchase levels.

    The reason rental prices are artificially high is that no one is able to afford/obtain mortgages and therefore has little choice but to rent. It will be fairer to both renters and potential buyers if multiple property ownership is discouraged.

    Longer term it will benefit the economy too, through the increased monetary circulation…

  6. Excuse me for asking but where exactly does Mr David Miles live? Is he a tax exile. Aside from the aforementioned Inheritance tax and forced sales to pay for long term care, we also have the little matter of community charge and maintenance on the property, which of course gives employment to local builders, gas fitters, plumbers, electricians roofers and painters.
    Perhaps he come from outer space!?

  7. All the comments posted here are valid. The only tosh spoken is by this twat Miles. It’s a shame that the people who walk the corridors of power and who have influence on policies due to their over-promoted position in life, almost always fail to think things through before opening their mouths.

    Mr Miles – I suggest you speak to a good independent financial adviser and he’ll explain a myriad of issues that I doubt you understand.

  8. Like so many ‘advisers’ & ‘experts’, this guy is an uninformed idiot! It is unbelievable that someone like this get to make influential public statements and that even more incredibly that government would listen to them. But hey! we’ve lived with the FSA & Hector Sants making uninformed yet catastrophic decisions which have and still are affecting the economic well being of our country.

  9. What is the bloke on?

    Last time I looked my mortgage payments make up the profits of banks which are taxed. I pay for gas which is taxed, I pay for electricity which is taxed, I pay for House & Contents which is taxed. Any money spent on renovation creates a tax revenue as well.

    I am pretty sure that I pay enough tax thank you very much.

  10. Surely we should be looking to abolish tax relief on BTL mortgages to try to keep house prices down. Honestly you can’t get a good Government adviser for love nor money these days.

  11. Stamp duty increases on home transactions discouraged labour mobility but nobody in government grumbled then. Now more tax is demanded to encourage labour mobility.

    What’s the common factor? More taxes!

  12. Has Miles got a property empire that he is trying to protect? The issue is that tennants can’t afford to get on the property ladder which leaves the BTL investors with a ready made market to exploit. If the government banned any renting of new ‘affordable’ properties then we may address this imbalance!

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