The Daily Telegraph has undertaken an interesting exercise which effectively challenges Chancellor George Osborne’s assertion that buy to let tax changes are necessary to put investors on a ‘level playing field’ with first time buyers and other owner-occupiers.
Personal finance writer Richard Dyson describes the restrictions on wear and tear allowance claims and on off-setting interest payments as “brutal” and takes to task the Chancellor’s budget claims in July.
Then Osborne said: "The current tax system supports landlords over and above ordinary homeowners. Landlords can deduct costs they incur when calculating the tax they pay on their rental income. The ability to deduct these costs puts investing in a rental property at an advantage."
Dyson’s article suggests this may not be the case.
He takes into account not only the buy to let tax changes proposed by Osborne, but existing tax burdens such as capital gains tax - paid by the landlord but not by the owner occupier - and the fact that interest payments made by landlords are higher over time than those paid by owner-occupiers with repayment mortgages because the principal loan to a landlord is not reduced.
Dyson then makes a comparison between a hypothetical first time buyer and a hypothetical landlord.
Each borrows £225,000 and buys a home at £300,000 but the landlord has an interest-only loan and the FTB has a repayment loan. Each keeps the property for 25 years and an identical size of capital appreciation is assumed.
For the first time buyer, after 25 years the total gain on selling the property is £941,460; for the buy to let investor the total gain is £577,434.
It’s an interesting and closely-argued piece. You can read it here.
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I'm glad that the main stream press are finally waking up to this gigantic threat. Osbourne is being entirely disingenuous as far as this tax is concerned and as far as his real intentions are concerned. The reality is we have a housing crisis and Osbourne sees institutional build to let as the solution. So,min order to sweeten the deal for the institutions he has promised to crush the competition, private individuals and by association the agents on whom they depend. I have been canvassing to oppose this strategy for many months and am mobilising everyone I can to help. The essential thing is to expose the truth and the consequences of this misguided strategy that could lose the Conservatives the next election and propose a more viable solution.
Simon you could not be more correct. There are several other issues that Mr Osbourne is either misinformed or complicit about.
1) The playing field is be shifted to old money and people that can buy property for cash. The restriction of access to land has for centuries be and the route of social imbalance. These steps will restrict access to investment land for the middle classes who on the whole use lending to access the property market.
2) We need to build more homes and in the medium terms if you want the house build and solid you need buyers and to stall the small landlord market will be a serious mistake.
3) Institutions currently own and control the majority of commercial and retails property and we all see the empty units and the inability of institution to adjust rental prices. There prefer to keep rents high and leave many unit empty than reduce rent. If they when involved in the residential sector in is likely that they would continue this approach which would mean higher rents and more empty property.
3) running a large local lettings agency for many years we saw at first hand how institutional residential landlord would happy leave property empty and in disrepair for extended periods (years) there are no as motivated as small investor to ensure they have the income. Simply small investors/Landlord care more than funds manager or large landlords.
Solution: Allowed full tax relief on interest for the first 5 properties (or a capital value amount) a person owns. Restriction relief on properties over that amounts.
Hi David
Thanks for the support, in terms of solutions, there are many options open. Subsidies and cheap loans could be made available to encourage build to let but the stock could then be sold to private landlords. Another idea I had was to require private landlords to invest a percentage of their rent into a new build investment vehicle from which they would eventually get a return. It is crazy of the Conservatives to adopt a policy that will alienate their core supporters, as a country we are bow between the Rock of this Government, a Government run by the immature entitked elite and the hard place of Mr Corbyn's Dystopian Nightmare! I think I will lay down..
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