If supporters of Chancellor George Osborne’s Budget restrictions on tax breaks for buy-to-let landlords thought opposition would die off quickly, they may need to think again.
Over the weekend the petition opposing the restrictions exceeded 25,000 signatures – quarter of the way to the 100,000 required to make the government consider giving parliamentary time for a debate on the subject. And there are still over four months to go for the target to be hit.
Osborne’s proposal is that mortgage interest tax relief for buy-to-let homebuyers should be restricted to the basic rate of income tax, currently 20 per cent, even if they themselves pay the higher 40 or 45 per cent tax rates.
Osborne says the relief, which will address “unfairnesses in property taxation”, will be phased out from 2017.
“Buy-to-let landlords have a huge advantage in the market as they offset their mortgage interest payments against their income, whereas homebuyers cannot. The better-off the landlord, the more tax relief they get. For the wealthiest, every pound of mortgage interest costs they incur, they get 45p back from the taxpayer.” Osborne told MPs at the time.
However, the proposal has received substantial criticism from a range of sources. The landlord bodies NLA and RLA have come out in opposition. A group of landlords have themselves set up the www.saynotogeorge.co.uk campaign website identifying how the measure will allegedly damage letting agents, estate agents, tenants and many others. A number of analysts have suggested the tax changes may reduce the number of buy to let landlords entering or remaining in the sector.
From next year Osborne is also proposing to change the way Wear & Tear tax allowances for landlords are calculated.
Currently it allows 10 per cent of rental profits to be written off for notional wear and tear, even if there has been no such actual expenditure in that particular year. However, HM Revenue & Customs is now consulting on a proposal that enables all landlords to deduct only the costs they actually incur on replacing furnishings in the property.
Philip Chadwick is the Lettings Director of Gascoigne Halman, and a board member of The Association of Residential Letting Agents.