Scrapping section 24 would reinstate the ability of landlords to:
- set the total amount of mortgage interest against rental income before tax is calculated;
- claim the basic rate reduction of 20 per cent on their mortgages, which is one of the largest costings for landlords;
- and create a level playing field between landlords who operate in their own name, who are subject to the tax changes, and those landlords who are not as they are set up as a business.
There are also some peculiarities in the rules. For instance, a room can be let in a property where an owner lives, and there is no requirement for a declaration for any income tax to be paid to HMRC as long as that room rent is not above £7,500 a year.
Yet compare the tax and other financial regulatory burdens on a landlord where in parts of the UK, the entire property rental does not even exceed £7,500.
Not only do landlords face ongoing tax hikes when in the market but they also pay the price before they have even entered.
With higher rates of stamp duty needing to be paid on second homes in England and Northern Ireland, higher rates of land transaction tax in Wales, and the recent rise from 4 per cent to 6 per cent in the additional dwelling supplement (ADS) in Scotland, landlords are being hammered from all angles.
Higher rates of stamp duty, land transaction tax and ADS all act as an inhibitor to investment, especially toward the higher end of the market, meaning the provision of family homes within the PRS is particularly limited.
It is disappointing to see the unintended consequences with landlords exiting the private rental sector, especially in Scotland as even prior to the recent increase of ADS 68 per cent of letting agents told us they had seen an increase in notices to sell from their landlords due to ongoing legislative changes.
ADS relief could be applied on a tapering basis to promote investment and help rectify the imbalance between the supply of and demand for private rented property.
Under such a system, the full rate might be levied on the purchase of one additional property, but two properties in a single transaction would be subject to an ADS liability of 3 per cent; three properties subject to ADS at 2 per cent and so on.
It would be great to see the Scottish government consider to revert the increase and generally review taxes for landlords.
At the same time, from April this year, local authorities in Wales will be able to charge up to 150 per cent more council tax for second homeowners.
Areas such as Gwynedd and Pembrokeshire, for example, which have the largest number of second homes, are already charging a 100 per cent premium. This again means that costs are only going to continue to rise for landlords this year.
While increasing homeownership is important for economic growth, a well-functioning private rented sector is equally important to support contract workers, students, and families.
