Housing Secretary Michael Gove has ruled out any reversal of Section 24 or other tax changes which have hurt landlords in recent years.
The Select Committee on Housing has written to Gove earlier this year demanding the government review the impact of recent changes to taxation rules in the buy-to-let sector “with a view to making changes to make it more financially attractive to smaller landlords.”
The Select Committee – which is an all party group of MPs analysing government policy on this area – says that at the very least Gove’s department should “be much clearer about what role it wants the private rented sector to play in the wider housing mix and, in particular, whether it values the involvement of landlords with very small portfolios.”
In a lengthy response, Gove tells the Select Committee: “While it is right that people should be free to purchase a second house or invest in a buy-to-let property, the government is aware that this can affect other people’s ability to get on to the property ladder.
“… Under the old system, landlords received relief on their finance costs (including mortgage interest payments) at their marginal rate of income tax, which meant that higher rate taxpayers received a more generous tax relief than those on lower incomes.
“To address this, and make sure that all landlords are treated the same by the income tax system, the government phased in a set of reforms to restrict finance cost relief to the equivalent of the basic rate of income tax. The reforms mean that all landlords will now receive the same amount of relief. It also reduces the disparity in income tax treatment between homeowners and landlords.”
Gove’s response points out that landlords continue to be able to claim relief at their marginal rate of income tax on the day-to-day costs incurred in letting out a property, such as letting agent fees and replacing furniture.
He then continues: “The government’s position is that finance costs are different to other expenses. Having a mortgage on a property allows the landlord to purchase a more expensive property and incur larger gains on the investment than they would have done without the mortgage.
“As with all aspects of the tax system, the government keeps the tax treatment of property income under review and any decisions on future changes will be taken by the Chancellor in the context of wider public finances.”
Gove concludes: “We need a thriving private rented sector that helps to accommodate these people’s housing needs. Given that 43 per cent of landlords own one property and over 80 per cent of landlords own one to five properties, we understand that the reforms contained in the Renters (Reform) Bill must work for smaller landlords as well as larger businesses.”