Sweeping Tax Reform for Landlords - six key demands

It doesn’t actually say where these demands are being sent, or how they intend to deliver them. In an echo chamber, possibly?

I don’t think the detrimental impact needs highlighting and circulating to the property press, instead it needs trade bodies like this to take real action and get in front of decision makers

I am always surprised when tenant groups criticise Govt for supporting LLs - they seem to think we have tax breaks others don't when in reality we have a tax burden heavier than other businesses. Inevitably these costs get passed on in one form or another to tenants but no=one seems to realise that penalising LLs hurts tenants!

The whole thing needs to be simplified. In recent years too much emphasis has been put on trying to artificially control the market with way too much 'help' for FTBs. How helpful it turns out to have been remains to be seen if prices drop and they're trapped in unsuitable homes with negative equity. Or repossessed if they can't afford the sky high mortgage payments when their current fix ends.

If we want a mobile, aspirational workforce we need available housing of all tenures. Renting needs to be viewed as a perfectly valid choice, not as in any way inferior. For that to happen providing rental housing needs to be regarded more positively and taxed accordingly.
It must be remembered that almost everyone will rent a property at some point in their lives. It doesn't mean they will always rent, just that it's the practical solution for that period of time (university, new Job, new relationship, new area, divorce, etc). It's a perfectly normal thing to do. Why should all those people be disadvantaged just to 'help' FTBs?

We also need to remember that things evolve. Ideas change. The second home thing is not quite as clearcut as it seems on the surface. Firstly definition. Is it a true second home purely for the use of its owner or a holiday let run as a business or a full time BTL occupied as someone's only home? Does its EPC allow full time occupancy? A great many seaside properties have very low EPCs and can't be adequately insulated without risking damp problems or making rooms too small. No one wants quaint fishermen's cottages to be demolished as they are an integral part of our coastal landscape but that doesn't mean they are practical as full-time homes.

The additional rate of SDLT is too high and pushes landlords and other second property buyers to buy cheaper properties. It's a bizarre tax if the idea was to lessen the competition for FTBs. If we have to have it at all it would make sense for it to be refunded to anyone who buys a proper BTL after 3 years of tax has been paid on the rental income. That would certainly help fund future BTL purchases.

Taper or indexation relief needs to be restored. No one is going to enter the industry with any long-term intentions with the current levels of CGT. Property is one of the assets that can't be split into nice little bundles and sold in a way that best utilises annual CGT allowances. Why exactly is it taxed at a higher rate than anything else? Other countries reduce the CGT rate after so many years of ownership. We used to, so it's certainly not an unprecedented tax break.

Anyone with more than one BTL should be taxed as a business with profit worked out in the same way as for every other business. One additional property may be accidental, more than that is a business choice. The idea that it's a passive investment is a complete nonsense. Maybe tax people with just one BTL the same as people doing Rent a Room?

• Gina Higgins
• 05 September 2023 09:13 AM

Brilliant post, Jo. One can only hope the NRLA are reading and acting upon it.

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• Peter Why Do I Bother
• 05 September 2023 09:50 AM

Excellent as always Jo, the taxation is at breaking point for a lot of people and looks like it will only get worse.

Gina, please do not hold your breath waiting for action from Beadles About...

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OOO look, someone at Property Mark has written a letter! They do this from time to time, it seems about all they do because they sure as hell never back agents! Any organisation purporting to represent agents or landlords should have been fighting the ridiculous government plans for years but: -
* Section 24 - wrote a letter!
* Tenant fee ban - wrote a letter!
* Plans to reduce EPC ratings on rental properties - wrote a letter!
* Renters Reform Bill - wrote a letter!
* Effect on student market in renters Reform Bill - all of a sudden, as it affected one of their own, a certain director organised meetings, interviews, campaigns as well as writing a letter!
* Changes to court system for defaulting tenants - wrote a letter!

When there is consideration of capital gains tax or any other tax policy, I think the age of landlords has to be taken into account. The average age of landlords is 60, and there are one million landlords over the age of 65. Therefore perhaps the majority of landlords don't have the time to wait for many years to elapse so that capital gains tax reduces significantly if there were taper relief - if they bought fairly recently. They want capital gains tax to reflect a right or option to retire.

The other factor is the landlords who are not prepared to continue letting if Section 21 is abolished. Whatever the benefits of holding property for longer would be in terms of capital gains tax taper relief, they will sell, unless they find an alternative way of letting. We have an article on this website, saying that landlords are selling up in droves for a number of reasons - the impending loss of Section 21 is undoubtedly one very important reason.

Taxing landlords who have buy to let properties as if they were a business/trade would mean that they paid Class 4 National Contributions at over 10% of their profits; that is a huge tax increase for most landlords.

• Ellie Edwards
• 05 September 2023 12:31 PM

As an aside, I think all Government rental policies should reflect the advanced age of many landlords. It is immoral to criminalise non-compliance with requirements which require online action by the landlord; many older landlords, particularly those aged over 70, do not have good internet skills, although they may be very competent in other respects.

There is also the factor that older landlords, particularly female landlords, may be subject to bullying by some groups of young male tenants. There are some people who only comply with contracts if they are worried about not complying. It is wrong to give those groups of people more power - they already have far too much. The Renters Reform legislation doesn't take reality into account at all.

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• Jo Westlake
• 05 September 2023 12:39 PM

If they bought fairly recently there wouldn't be much of a Capital Gain. It's those of us who bought 20 or 30 years ago that are most heavily impacted by the current CGT policy. When we bought taper relief existed and we bought on that basis. Anything we have bought since taper relief was abolished we have bought knowing the rules had changed. Restoring taper relief would be fair to longer term landlords and a bonus for more recent ones. The fact people aren't exactly queuing up to be landlords is partly because there is no viable exit route with such punitive CGT and other selling costs.

NI is only payable on earnings over £12570. Each earning source is its own event, not like income tax which is cumulative. So the average small landlord with only one or two properties wouldn't pay any NI, especially if the profit figure was derived in a traditional way. It's entirely possible to have a couple of part time day jobs, do a bit of consultancy, have a couple of BTLs, earn £50K from the 4 separate sources and pay no NI whatsoever. If bigger landlords weren't subjected to Section 24 paying class 4 NI at 9% wouldn't be a problem. It drops down to 2% on earnings over £50270.

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You are right, Jo, that Class 4 National Insurance Contributions (NIC) are paid when there are self-employed profits over £12,570.

I think the average small landlord would pay Class 4 NIC if those rules extended to them; the last English Landlord Survey (2021) found median rental income was £17,200. This had gone
up from £15,000 in 2018. A quarter (29%) reported rental income between £20,000 and £49,999 and 15% reported a gross rental income over £50,000.

Nearly 40% of landlords have no mortgage and so are not affected by Section 24.

Did you find out Jo whether you could incorporate only the properties which you own with your husband?

The numbers vary depending on definition. Rental turnover, taxable income and genuine profit are 3 entirely different things. Median rental income is pretty meaningless.
By the time expenses such as insurance and repairs have come out the profit is lower. For anyone with a mortgage it's lower again.
40% of landlords may not have a mortgage but then again don't 45% of landlords only own one property? Is it the same group of people? Outside London a lot of rents are pretty low. Less than £1000 a month for one and two bedroom properties.
Something like 18% of landlords own about 50% of all rental properties. As lenders won't lend to inexperienced landlords on HMOs it's a pretty safe bet that 18% of landlords house significantly more than 50% of all tenants.

I don't think Chris answered that question. I can't remember which day I posted it.

I thought the main issue about your incorporation was whether you would be entitled to Section 162 Incorporation Relief on the properties you chose to incorporate. That may depend on how much time you spent on the seven properties you own jointly with your husband - is it twenty hours a week or more which was the number of hours established in the Ramsay case? Seven properties is a lot, so that would be in your favour, I would have thought. It also might be relevant to Incorporation Relief if you have separate bank accounts for the properties which have different owners.

Your question was whether the properties you owned with different people would be treated as different businesses. I am not an expert, but I believe that it is possible to form a new entity to purchase, own and operate each property. Since the entity is separate and distinct from others, if a problem occurs which leads to a massive liability, the individual is protected from losing more than the value of that one property.

Incidentally, I don't think median rental income is meaningless. It means that 50% of landlords have a rental income above £17,200, often substantially more, so that they would be required to pay Class 4 National Insurance contributions because their profit would be likely to be well above £12,570.

• Jo Westlake
• 05 September 2023 16:06 PM

So a landlord with a profit of £17200 would pay less than £400 NI per year. Profits of £50000 would pay about £3400 and profits of £100000 would be about £4400 NI per year. Compared with Section 24 it's peanuts. Don't forget I'm saying we should be taxed as proper self-employed businesses instead of the horrific Section 24. To cover our NI would probably come to about £15 per tenancy per month for landlords with only a couple of tenancies. For bigger landlords probably closer to £10 per tenancy per month. NI would be payable on genuine profit not the open ended Fantasyland Section 24 where it is entirely possible to pay tax while making a loss. If I look at 2 of my houses in isolation the Section 24 tax will be £38 per tenant per month in my 6 person HMO and £65 per tenant per month in the 5 person HMO. Even on my ex Council flat with a single low income tenant on a mortgage at 2.89% the Section 24 tax is £55 per month. That's on top of the normal 40% tax I would be paying anyway.

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• Ellie Edwards
• 05 September 2023 16:13 PM

Your calculations assume that the person is affected by Section 24. I am not, and I pay quite a large amount of tax at 40%. It would definitely be the end for me if I had to pay thousands more in National Insurance contributions. I am sorry that you are suffering through Section 24 though - seems very hard on you.

On the other matter, there is a video on Youtube video entitled - "Should you have separate Ltd companies for every BTL property?" Not sure if that is of any interest to you.

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If you pay higher rate tax and have mortgages you are affected by S24. Using one company is bad enough - using multiple companies compounds the situation

• Ellie Edwards
• 05 September 2023 18:17 PM

Hi Chris, The reason that I mentioned that you could use a different company for each buy to let property, was that Jo had mentioned that her BTL properties were owned jointly with different people, she wanted to know whether she would be regarded as having only one BTL business or more than oneBTL business based on who owned the properties. This was relevant because of the wording of Section 162 Incorporation Relief.

The fact that people can incorporate each property separately, seemed to suggest that you could create more than one business and that Section 162 could therefore apply if you didn't transfer every property in which you had an ownership interest, but only those which you wanted to transfer to a company. The issue was whether HMRC would accept that. Would HMRC grant incorporation relief providing 20 hours were spent managing the properties which she sought to incorporate (Jones)?

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