Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 18
18
Acknowledged
Paragraph: 106
We recommend that the Government review the impact of recent changes to taxation rules in...
Recommendation
We recommend that the Government review the impact of recent changes to taxation rules in the buy-to-let sector, with a view to making changes to make it more financially attractive to smaller landlords. If it is not willing to do this, it should at least be much clearer about what role it wants the private rented sector to play in the wider housing mix and, in particular, whether it values the involvement of landlords with very small portfolios.
Government Response Summary
The government acknowledges concerns about the impact of taxation rules but states that the intention was to level the playing field and the private rented sector remains stable in size.
Paragraph Reference:
106
Government Response
Acknowledged
HM Government
Acknowledged
The Government recognises the concerns that the Committee has raised about the sector, particularly the cost of renting and the role of smaller landlords within it. In 2015, the Government began to change the tax relief landlords could claim on finance costs, such as mortgage interest, moving from allowing landlords to deduct these costs from their rental income to instead receiving a basic rate tax credit on their finance costs. This change was phased in gradually and fully implemented from April 2020. The Government’s intention was to level the playing field between landlords and other businesses, as well as between landlords and homeowners, who don’t receive tax relief on their mortgage interest. Landlords continue to be able to deduct other legitimate business expenses when calculating their taxable profits, such as insurance, property repairs and maintenance, and letting agent fees and replacing furniture. The government’s position is that finance costs are different to other expenses. Having a mortgage on a property allows the landlord to purchase a more expensive property and incur larger gains on the investment than they would have done without the mortgage. As with all aspects of the tax system, the government keeps the tax treatment of property income under review and any decisions on future changes will be taken by the Chancellor in the context of wider public finances. Our ambition is to provide safe, secure, and decent homes for everyone regardless of which tenure they occupy. The private rented sector plays an important role in the housing market, and data published on 23 May 2023 continues to show that the sector remains stable in size.3 We value the involvement of all responsible landlords in the sector, regardless of their portfolio size or their specific business model. While the government wants to support those who aspire to be homeowners, we appreciate that home ownership is not right for everyone and that there are many people for whom renting a home is either more practical or more affordable. We need a thriving private rented sector that helps to accommodate these people’s housing needs. Given that 43% of landlords own one property and over 80% of landlords own one to five properties, we understand that the reforms contained in the Renters (Reform) Bill must work for smaller landlords as well as larger businesses.