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Mortgage industry reacts angrily to IoD’s call to scrap buy-to-let tax break

The mortgage industry has reacted angrily to the Institute of Directors’ call to scrap the buy-to-let tax break.

The powerful lobbying body’s policy paper ‘Encouraging Savings: A better tax regime’ has the objective of providing an attractive scheme for the taxation of savings on a sustainable basis.

The IoD claims that this would require a series of measures designed to remove distortions which currently exist in the taxation of savings products and some changes would be needed to the treatment of real property.

The report says that one of the attractions of investment in buy-to-let property is that it is possible to cover most of the rental income with interest which is deductible for tax purposes.

The IoD says there has been press comment suggesting that the distinction between capital repayments and interest often becomes blurred, giving an even greater apparent incentive to buy-to-let investors, although HMRC are well aware of this issue and are on the look-out for blurring of the boundary.

The body proposed that the ability of buy-to-let investors to deduct interest from rents could be withdrawn. Interest not allowed in computing the tax on rental income might then be allowed as a deduction from the capital gain when the property was eventually sold, or it might not be allowed at all.

The idea would be to level the playing field between investors in buy-to-let and investors in other assets.

But Property for Life managing director David Austin warns that the if the BTL tax break is removed the damage of landlords leaving the private rented sector would affect the wider community.

He says: “The private rented sector is an essential part of the property market, fulfilling the high and increasing demand for rented accommodation and taking up the slack on social housing, ensuring that those who cannot afford to buy have somewhere to live.

“The proposed shake-up of the tax regime on savings would not level the playing field between property investors and investment in financial assets, but would tip the balance in the other direction. People are increasingly putting their savings, including pension provision, into property rather than traditional savings products which have historically offered poorer returns. As a result, the financial services industry has suffered a lack of confidence and is only looking to address its own interests with these changes.”

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