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  • Section 24 HQ

    Report calls for sweeping landlord tax reform



    In its latest publication the Institute of Economic Affairs (IEA), a free-markets think tank, said the Government’s recent tax changes for buy-to-let property owners defied “any basic economic analysis”.

    The report has called for a complete overhaul of the tax treatment of rental properties.

    The report concludes:

    In recent years, the government has changed the tax system in a way which leads to private landlords being taxed more harshly than other forms of business.

    Furthermore, private rented property is discriminated against, in a significant way, as compared with owner-occupied property. The new tax system could lead to penal tax rates in some circumstances. Business costs cannot now be fully deducted from revenues before taxes are calculated. In addition, property transactions taxes have been raised with the increase being targeted on let property.

    The justification for these decisions by the Treasury defies any basic economic analysis.

    The effect of the measures will almost certainly be an increase in rents above the levels that would otherwise have prevailed and a reduction in the supply of rented housing. In addition, it is likely that the private rented sector will de-professionalise. Alternatively, or in addition, landlords will take action to avoid the higher levels of tax, which will lead to higher taxcompliance costs – costs which, again, will almost certainly be passed on to tenants.

    There could be an overall reduction in the supply of housing.

    This critique of recent tax changes raises the question of how property should be taxed. Some of the suggestions below would, in practice, simply mean a repeal of recent measures.

    However, the other policies suggested would also help to create a more efficient tax system for property more generally. Specifically, the authors suggest that residential property is taxed as follows:

    ● Investment in property is treated like investment in any other business so that all business costs, including business finance costs, are deducted before taxable income is determined

    ●  There should be no discrimination, as far as is possible, between different vehicles for holding property. Thus, the tax position of property held within a corporate vehicle should be no different from the tax position of property held by an individual after all income has been distributed to the beneficial owners.

    ●  If Stamp Duty remains, it should be charged at low levels and not charged at different rates for owner-occupied and let property.

    ●  As noted above, Stamp Duty is a very inefficient tax and should, ideally, be abolished, even if it were replaced by other forms of property tax.

    ●  A tax on imputed rent for owner occupiers could serve as a replacement for Council Tax and Stamp Duty. This would have the benefit of levelling the playing field between different forms of property ownership as well as between different forms of income. Furthermore, it would facilitate the abolition of two taxes that are inefficient from an economic welfare point of view (see Meakin 2016).

    The recent changes to property taxation are just one aspect of an extremely complex UK tax code.

    The changes have made the tax code more complex and less economically coherent.

    A review of property taxation more generally could reduce the complexity of the UK tax system and make the system more efficient from an economic welfare point of view.

    READ THE FULL REPORT  

    SEE ALSO  -        What causes homelessness in the UK?

    UP NEXT -            9 reasons why Section 24 will be reversed

    DON'T MISS -       Housing crisis? You ain't seen nothing yet! A "perfect storm" is brewing.

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    Hypothetically if we had a General Election today and the tories had won for the 2nd term - I could then see them revisiting S24 - as that is not the case I do not see them making any changes as they believe it is a vote winner......

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    Not going to happen, the policy has little if any effect on the overall number of homes available, just changes in tenure towards those more likely to vote.

    Iain Duncan Smith wrote at the weekend that perhaps there should be some tax advantages to those that let at LHA rates, if there’s a shift it’ll be at this end of the market for homes that are not as attractive to owner occupiers. In addition its a section of the market that the corporate landlords have no interest in.

    But really the matter could be resolved by just increasing LHA rates to a true reflection of the current 30th percentile.

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    And the leading local housing association around me has a huge new fleet of vans and is taking on all the local builders/handymen by offering huge salaries - oh how I wish that I could be given free land to increase my housing stock.....!


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    Yep, a housing association developed 16 units near to my flats, they were given the land, gained grants etc so that in the end they only needed to finance each unit to the tune of 38k, very easy to offer rents at a social level if thats your aquisition cost.

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    Ask the man and women in the street and most will have no clue about S24

    So what makes our sector think it will ever be reversed ?

    S24 is a very clever tax its un-seen and can be difficult for a Landlord to fully understand it

    For the Landlords who don't do Self Assessment, it's nothing to worry about

    I can't see it changing one bit (hope I am wrong)

    So we have to make the best of what's happened ...

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.