Landlords unite to warn government tax increases will hit tenants

15/08/2016
Nathanael Williams

As the UK and Scottish Governments propose and enact tax increases, landlord organisations claim tenants will be hit

THE Scottish Association of Landlords (SAL) has warned that tax increases being planned and imposed by both the UK and Scottish Governments will make it easier for irresponsible landlords to give tenants "sub-standard housing".

SAL also stated that the tax changes, which could mean an increase to landlord costs, will, as a result, threaten the housing supply because both governments have put private renting at the heart of their strategies to increase affordable housing stock.

The tax changes include the introduction of 'mortgage interest relief' at the basic rate of income tax, meaning income tax for some landlords will be calculated on the landlord’s income, not their profit.

"We need the data and information about the terrible effects these tax changes will have if we are to convince the UK chancellor and Scottish finance minister to alter course." John Blackwood

Speaking to CommonSpace, John Blackwood, chief executive of SAL, said: "With tax and legal changes being implemented at Westminster and Holyrood, there has never been a more important time for landlords to join trade bodies such as SAL.  

"We need the data and information about the terrible effects these tax changes will have if we are to convince the UK chancellor and Scottish finance minister to alter course.

"We know from our regular branch meetings around Scotland that landlords are already seeing increased costs as a result of tax changes.  As well as impacting on individual landlords, we are concerned this could make it harder to tackle the current housing crisis by making it more difficult to attract much-needed investment."

Additionally, since April this year, the 'wear and tear' allowance has been removed and replaced with only off-setting actual costs incurred on replacing furnishings, appliances and kitchenware in a rented property.

Landlords will no longer have automatic entitlement to a 10 per cent tax break for wear and tear of their properties, where if they have furnished properties they can deduct 10 per cent of their rent from their profit to account for damage, irrespective of what they spent on the furnishings.

This means landlords used to reduce their tax liability even when they did not improve the property. 

The UK and Scottish Governments both replaced the allowance with a new system that enables all landlords of residential property to only deduct costs they actually incur.

"The LBTT will affect between 8,500 and 12,500 transactions each year, and could raise between £19m and £27m." Scottish Fiscal Commission 

Alongside this, the Scottish Government has introduced a three per cent levy on the Land and Buildings Transaction Tax (LBTT) for those buying additional properties, including properties to rent out.

According to the Scottish Fiscal Commission, the official watchdog of the Scottish Government's tax and spending plans, the LBTT will affect between 8,500 and 12,500 transactions each year, and could raise between £19m and £27m.

Blackwood continued on the theme of costs and the threat to housing stock, saying: "With the uncertain investment environment that has been created by the Brexit vote, at least in the short term, the last thing anyone in the housing sector needs is tax rises which will only make things worse.

"Furthermore, we are concerned that if costs increase, this could open the door for rogue landlords who don’t follow the rules on either tax or safety and quality standards at a time when real progress is being made at driving these unscrupulous players out of the market."

SAL, along with the Residential Landlords Association (RLA) in England, has teamed up to launch a joint campaign to get new Chancellor Philip Hammond, to reverse or amend tax changes in his Autumn Statement expected later this year.

A YouGov survey for the Council of Mortgage Lenders (CML) suggested that 34 per cent of landlords will reduce their investment in the PRS as a consequence of these tax changes.

Picture courtesy of Property Tax Portal, Agus Firinn

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