George Osborne is facing opposition to the landlord tax changes he introduced in the budget from his own Cabinet colleagues, amongst others including a petition that has attracted over 14,000 signatures to date, calling for the changes to be reversed.
Whereas previously, landlords were able to deduct mortgage costs from their taxable income, the measures announced in July 2015, to be introduced from April 2017, will mean that all rental income will be added to salaries from other occupations.
The outcry within his own party is almost certainly due to some politicians having been alerted to the fact that not all private sector landlords possess huge portfolios with an enormous rental income; many landlords have only one or two properties and for them, the changes will have a disastrous effect, if not compensated for by increased rent. However, there is unlikely to be a turnaround in this, whatever representations are made, as the Chancellor is said to be personally committed to proceeding with it.
Though the chancellor suggested that the changes would only affect those landlords in the higher tax bracket, the National Landlords Association believe that almost 150,000 landlords are currently basic rate tax payers would, with the new way of calculating income, move into the higher tax bracket, as their incomes would then exceed £42,385, the point at which higher tax kicks in. In addition, for some of these landlords, this would mean they would lose their entitlement to Child benefit.
It is no surprise that the Government disputes this, but would not give reasons why they believe this is wrong. In fact, the Government are in a better place than they have ever been to provide accurate figures, because of the new tax system brought in alongside Universal Credit. Their failure to do so would perhaps give more credence to the NLA assertions than the Governments re-assurances.
As usual, this seems to have been introduced without a full understanding of the implications and seems a contradictory measure, in that the Treasury is committed to reducing the number of people paying 40% tax by raising the threshold to £50,000 by 2020. An instant rise might assist, but in 3 years, those landlords hit by the rise in 2017 will have raised their rents and could still be in the higher rate zone.
Small scale landlords provide a valuable source of properties, needed by local authorities to fulfil their responsibilities to provide homes for the statutory homeless. They will be forced to raise rents to a level unaffordable to the vulnerable. Those landlords who chose not to sell an inheritance, because of emotional attachment, may have to re-think their strategy, deciding that with a reduced profit, it is not worth the almost certain hassle consequent on taking private tenants.
Landlords are right to feel aggrieved. Encouraged by a previous Government to buy property as a ‘pension pot’ when pension funds were found to be at risk, they now find themselves penalised for their attempts to safe-guard investments for their old age. Many, if not most private landlords, will feel a natural affinity to conservative policies; the party that encourages private enterprise and self-sufficiency. Sadly, some will feel their confidence misplaced as they take the hit to help address what is seen as inequity in the tax system.