Weekly landlord news digest: Issue 35
This week’s news roundup, brought to you by Hamilton Fraser Total Landlord Insurance, features the latest updates from the private rented sector.
This week, buy to let landlords would be required to pay more money in capital gains tax (CGT) under new proposals put forward by the Institute for Public Policy Research (IPPR). But a leading economist argues the government’s tax war against landlords has been a waste of time.
In other news, letting agents are warned not to pass the costs of repair work on to tenants and a landlord receives a hefty fine for HMO breaches.
Make landlords pay more capital gains tax, urges think tank
Landlords are not paying enough capital gains tax when they sell investment property, according the Institute for Public Policy Research (IPPR).
As part of a plan to tax all income at the same rate, the IPPR wants to abolish capital gains tax (CGT) allowances, exemptions and reliefs landlords can claim when disposing of property.
Currently, landlords pay CGT at 18 per cent or 28 per cent, depending on whether they are basic or higher rate taxpayers.
They can also offset a £12,000 annual exempt amount, the costs of buying and selling and, until April 2020, lettings relief.
But the IPPR argues landlords pay less CGT than workers pay in income tax on the same earnings, because income tax rates are higher – 20 per cent basic rate and 40 per cent higher rate.
Reforming the tax system to include all income sources under the same rules would remove this inequality, says the IPPR, raising between £105 billion and £145 billion in extra capital gains revenue for the Treasury over five years.
“Lower tax rates for the wealthy than for ordinary earners are fundamentally unfair, they distort economic behaviour and create opportunities for tax avoidance. There are large uncertainties around these estimates, but we still expect these changes to raise significant sums. Our proposal would substantially increase revenues and make the tax system fairer. This reform would involve removing most exemptions, allowances and reliefs that currently exist for CGT and dividend taxes. But the exemption on primary homes should be maintained.”
– The IPPR
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…But economist says property tax war is a waste of time
David Miles, a former Bank of England monetary committee member and professor of financial economics at Imperial College, London, argues that making property investors pay a three per cent stamp duty surcharge, increasing CGT for landlords and slashing claims for mortgage interest relief have failed to make more affordable homes available for first time buyers.
In short, making buy to let landlords pay more tax hasn’t freed up more homes for first time buyers, he says.
“These policies were justified on the grounds that they would reduce tax distortions which favoured buy to let purchasers and drove prices up for hopeful first time buyers and reduced their welfare,” Miles writes in a blog for the Residential Landlords Association.
Read more about David Miles’ views on the government’s approach to the rental market on LandlordZONE here.
“That argument was incoherent back then and it remains so today. But the policy remains in place. The tax distortion arguments are nonsense. Rather than being a move towards tax neutrality – as was claimed – they in fact represent a further penalty against private provision of rented properties by potential suppliers who cannot (or choose not) to invest via a corporate entity.”
– David Miles
Landlords foot the bill for sorting out tenant problems
“Such a clause may be subject to challenge under consumer protection legislation and, if successful, would be deemed an unfair term of contract, while agents must make their own commercial decisions on how to take this issue forward, ARLA is not recommending this course of action and as such will not be making any changes to its tenancy agreements.”
Landlords must pay administration fees imposed by letting agents for fixing damage caused by tenants, says a leading property lawyer.
Letting agent trade body the Association of Residential Letting Agents (ARLA) asked lawyer Erol Topal for his opinion about who should pay, following the implementation of the tenant fee ban in England.
The fee is typically charged by letting agents for managing repairs like blocked drains, which are likely caused by renters.
Topal considers that the fee could be charged if a clause allowing so is included in a tenancy agreement, but argues that making the charge is against the spirit of the new law.