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Category: government and politics
Recent proposals by the National Residential Landlords Association (NRLA) and separate insights from University College London (UCL) economist Paul Johnson advocate for the additional three per cent Stamp Duty Land Tax (SDLT) on private landlords to be scrapped.
Johnson also emphasised the disproportionate tax burden on landlords and the subsequent impact on rental costs in an article recently published in The Times.
With the Chancellor scheduled to announce the Spring Budget on the 6th March, Chief Executive of the NRLA, Ben Beadle, gives reasons why abolishing Stamp Duty Land Tax for rental properties is the right way to go.
Currently, an additional 3 per cent is charged on each of SDLT rates for additional properties owned. Therefore, residential properties with a value between £250,001 and £925,000 could be charged 8 per cent SDLT, the current five per cent for a residential property plus the additional 3 per cent levy. This peaks at 15 per cent for properties over £1.5 million.
It is this additional 3 per cent SDLT that the NRLA is suggesting should be scrapped.
Boosting government finances
The NRLA propose that scrapping stamp duty for rental properties would incentivise investment into the sector, thereby increasing the supply of rental housing.
Research published by Capital Economics (an economic research company) estimates that the move would increase the number of rental properties by 900,000, thereby increasing government revenue through other associated levies by £10 billion.
UCL economist Paul Johnson, who also made the suggestion to scrap stamp duty for additional properties, warned that higher taxes on landlords translates to higher rents, ultimately affecting tenants.
Tax burden on landlords
Johnson examines the broader tax regime faced by private landlords in his article, emphasising the weight of multiple tax burdens upon them.
Landlords contend with extra stamp duty, as well as higher taxes on rental income and capital gains.
Not only do prospective landlords have to pay extra stamp duty, they pay far more tax on other aspects of their investment than do owner-occupiers. They pay tax on rental income received, with now only limited tax relief on mortgage payments. A higher-rate taxpayer whose rent receipts only just offset their mortgage interest payments will still pay tax of 20 per cent on their rental income. Landlords also pay capital gains tax on the sale of the property, including on purely inflationary gains.
Johnson argues that reducing or eliminating these taxes could lead to increased rental supply and lower rents.
The effective tax rate for higher-rate taxpayers engaged in property investment can surpass 76 percent, creating a challenging environment for landlords and, consequently, impacting rental costs.
Impact on rental supply and affordability
Scrapping the stamp duty levy and reducing the overall tax burden on landlords could incentivise property investment, leading to a surge in rental supply. This would ultimately be a positive for renters, as rents for property would likely reduce.
Paul Johnson says:
Tax changes that increase the supply of rental housing will likely reduce the supply for owner-occupation.
However, even if you believe there is a case for subsidising owner-occupation relative to renting, this surely is not the way to do it.
The big losers from the present system, other than the economy, are private renters who can’t get on the housing ladder.
Ben Beadle, Chief Executive of the NRLA, contends that this move would help meet the rising demand for rental properties, addressing the ongoing housing crisis.
The Chancellor needs to pull out all the stops to tackle the housing crisis.
Growing the private rented sector is not only vital if tenant demand is to be met, but it would also provide a substantial boost to Treasury coffers, enabling it invest in vital public services.
It makes no sense to discourage investment in desperately needed private rented accommodation.
Inaction will only result in more misery for prospective renters.
Challenges to scrapping SDLT for rental properties
Despite the potential benefits, the proposal to scrap the stamp duty levy faces challenges in terms of public perception.
Landlords are often viewed unfavourably, and any move to reduce their tax burden may not be popular.
Johnson acknowledges this reality but argues that the ultimate beneficiaries of the move would be tenants, as lower taxes on landlords would likely translate to more affordable rents.
Politically, cutting these rates won’t look attractive, landlords generally are not top of the list when looking for popular tax cuts, but, again, we need to look harder at the actual impact of these taxes. They limit the number of properties available for rent. They therefore raise the prices faced by renters.
This is not the first time there have been calls for tax changes for landlords. Back in November, Michael Gove even hinted that the door was open to proposals for change to positively impact the PRS.
Whether this government would make such a bold move feels unlikely, but there is evidence to suggest it would improve things for generations of would-be homeowners, who are now as ill-equipped to afford rent as they are to raise a deposit for a house.