Government "unfair and incoherent" on buy to let tax

The government’s response to the online petition against proposed tax changes for buy to let investors is “unfair, incoherent and missing the point” according to the managing director of Mortgages For Business.

The petition complains about the proposal by Chancellor George Osborne to cap the tax offset against buy to let interest rates at 20 per cent, even though many higher-earning landlord investors may be paying 40 or 45 per cent tax. The government has responded by saying that it is trying to create a level playing field for owner-occupier and landlord tax payers.

David Whittaker says he cannot see the government changing its mind over the proposal even if the petition - now nearing 30,000 signatures - succeeds in achieving its 100,000 target.

But writing on the Mortgage Strategy website Whittaker says the proposal is unfair because “it fails to recognise that finance costsare a normal cost of doing business; therefore, it is not fair that some individuals will be unable to offset the full cost of doing business against their income.”

He continues: “It is unfair that some landlords will be penalised for buying investment properties in their own name, whereas, if they had bought through a limited company, they would not be so penalised. The change has the impact of retrospective taxation legislation.”

However, Whittaker backs the second buy to let tax change mooted by Osborne in July’s budget - to make the so-called wear and tear allowance benefit only actual repairs rather than a blanket annual allowance, as has been the case until now.

“It seems very reasonable and will replace the existing arrangement whereby landlords of furnished properties can deduct 10 per cent of their rent from their profit to cover wear and tear, irrespective of expenditure” says the Mortgages for Business chief.