Calls for Chancellor George Osborne to announce new tax relief measures for landlords in next week’s Budget have split the mortgage industry.
Landlords can already minimise the tax they have to pay by offsetting the cost of mortgage interest, letting agency fees and replacement furniture and repairs against the tax payable on rental income.
But the Residential Landlords Association and property services group Countrywide are calling for the Chancellor to give more tax breaks to landlords, arguing it will increase the supply of much needed private rental properties.
Mortgage and housing industry experts argue that the buy-to-let sector will become increasingly important in the current depressed market.
Data from the Council of Mortgage Lenders shows gross buy-to-let advances grew from £10.1bn in 2010 to £14.1bn in 2011 in a market where total lend-ing hit around £135bn, showing the increasing importance of the sector in providing new homes.
Countrywide financial services director Nigel Stockton says: “With renting becoming an increasingly important part of the market, I think the Government should look at tax breaks for landlords.”
The Residential Land-lords Association says offering more tax relief will result in a boost to supply, suppress rents and encourage more invest-ment in rental property, which will help ease the housing shortage.
It has compiled a list of ways the Chancellor could achieve this, which inc-ludes a capital allowance, which would provide tax relief on any repairs made in real time, instead of landlords receiving the relief when they sell the property.
The RLA has also called for rollover relief for capital gains tax when the proceeds of a sale are reinvested in a rental property or if the property is sold to a first-time buyer and is also urging the Chancellor to provide entrepreneur relief for landlords.
RLA chairman Alan Ward says: “With rapidly increasing demand for rented accommodation and a supply shortage driving up rents, there is a real need for changes to the tax treatment of the sector to encourage it to invest. It is a nonsense that when landlords are running a business, that they should be hampered by a tax system that treats them as investors.”
Ward says supporting landlords would provide a boost for the economy.
He says: “Our proposals for change are cost-neutral as they recognise the revenue that will flow from income to new and bigger landlords and that every £1 invested in the sector provides a return to the economy of £3.50 through expenditure on building work and furniture.”
But brokers argue against providing further tax relief for landlords.
John Charcol senior technical manager Ray Boulger believes it would artificially support the rental market at the expense of the owner-occupied market.
He says: “I am not sure it would be appropriate to provide more tax benefits to landlords because one of the implications of that is you would skew the market in favour of renting and I do not think that would be politically sensible.
“A lot of people want to buy eventually and the more difficult you make it to buy, which you would do by doing this, the fewer people would be able to get on the ladder.”
Mortgages for Business managing director David Whittaker considers it would not be fair to offer these incentives to landlords.
He says: “As a taxpayer, would you want to pay more tax so landlords can invest their money to make more money and not pay tax until they sell their business? These are just preferential terms for landlords when there is no commercial or moral justification.
“You might ask why I am not arguing for this when it would mean my customers would have more money to invest and take out more mortgages, but actually there is a moral stand point on this.”
Aside from the much-publicised calls to reverse the decision to end the stamp duty holiday, brokers have also argued the Government’s shared equity scheme, FirstBuy, would benefit more people if it were extended beyond new builds.
The £250m scheme was announced in the last Budget and is jointly funded by housebuilders and the Government to provide FTBs with a low-interest loan of 20 per cent of the cost of the house.
London & Country associate director of communications David Hollingworth says: “Everything has become focused on newbuilds. I can see why it is in the Government’s interest to do it that way, as it is intended to kill two birds with one stone and get people in homes and at the same time stimulate housebuilding.
“But of course, lots of people will not want a new build and a lot of people will want this type of scheme to help them in the open market.”
The Liberal Democrats have reiterated their calls for a mansion tax for properties worth more than £2m but this idea is heavily criticised by Boulger.
He says: “I think Vince Cable is off his trolley with the mansion tax. It would require a whole raft of new bureaucracy. You would have a lot of properties which are on the borderline and you would have a lot of arguments about valuations and these would need to be reassessed every year.
“What would make sense is to extend the council tax bands by adding one or two extra, in my view.”