What are the chances of tax relief reform for landlords?

13 February 2023

With a new report from the House of Commons recommending a review of the buy-to-let tax regime, how likely is it that landlords will see more tax relief in the near future?

With the rising cost of new legislation requirements, upcoming downgrades to capital gains tax relief, and increasing mortgage interest rates, pressures are mounting on landlords. The base rate set by the Bank of England now sits at four percent.

Although reports show that some new fixed-rate mortgages are priced below this base rate, landlords on a variable mortgage rate or coming to the end of a fixed-term deal may see their monthly outgoings take a hit, as their interest payments jump. 

The predicted impact of a 4.5% base rate

Predictions suggest that the base rate may increase further, to 4.5% by the spring. If that holds true, a recent Finbri survey found that 52% of landlords in the UK would increase their rents - and 44% would look into selling their investment properties.

Supply volumes have already dipped by 25% since 2019 as landlords sell up or look for alternatives to property investment, with 32% of those surveyed by Finbri saying they'd consider investing in stocks and shares instead.

This low level of supply is causing rents to soar - as outlined in our recent open letter, written in collaboration with a number of business leaders across the sector.

Read and sign the open letter: Pressures on the Private Rented Sector

Presenting the case for tax relief for the Spring Budget 2023

In the run up to the Spring Budget 2023, expected in mid March, both Propertymark and the NRLA have shared their views on how the taxation of landlords should factor in.

The NRLA has called for a full review of the taxes affecting the lettings sector, encouraging the government to look into the "combined impact" of the tax changes on the supply of rental properties.  

A petition asking the government to reinstate mortgage interest tax relief has also attracted over 30,000 signatures.

This addresses section 24 of the Finance Act 2015, which restricted the amount of tax relief that landlords can receive on their finance costs, including mortgage interest payments.

Propertymark has backed reintroducing this relief, and estimates that doing so would cost the government £1 billion. However, the membership organisation says that this action would help stimulate housing supply and, over time, reduce rents.

The government would then make savings through the reduced housing benefits required to support tenants, as prices become more affordable.

The NRLA has also expressed support of reversing the restrictions to mortgage interest relief for landlords - and additionally suggests ending the 3% stamp duty levy, currently applied to rental property sales.

Ending this levy could see an influx of 900,000 new private rentals into the UK market over the next 10 years, according to Capital Estates.

The official response so far

The current government's view on landlord taxation is mixed.  

The government has already responded to the petition asking for mortgage interest rate relief, saying that it will "continue to set mortgage interest relief against rental income at the basic rate of tax", as it feels that's "fair".

Although the topic would be debated in Parliament if the petition were to reach 100,000 signatures, the 33,000 signatures at time of publication suggest that the government's initial reply may in fact be its final response on the matter.

Chancellor of the Exchequer Jeremy Hunt has also dampened expectations for tax cuts in the Spring Budget 2023, saying that “the best tax cut right now is a cut in inflation” - although he does share that tax cuts should come "“when the time is right”.

When that time may arrive remains to be seen, yet landlords and agents may want to lower their expectations for any major tax relief measures in the short term.

Potential review on the horizon?

However, some corners of the Conservative party are already on board with the NRLA's view that landlord taxes have negatively affected supply in the sector.

Andrew Lewer, Conservative MP for Northampton South, has shared how it's becoming a more "financially prudent decision" for landlords to sell up, especially when considered alongside the uncertainty of future legislative requirements, such as changing EPC ratings and the Renters' Reform Bill.

“Restrictions on mortgage interest relief and the imposition of a stamp duty levy on the purchase of homes to rent out have indeed made life more costly for landlords," he says.

A new House of Commons report on the Renters' Reform Bill proposals suggests reviewing the impact of recent changes to the tax rules in the buy-to-let sector - and recommends "making changes to make it more financially attractive to smaller landlords."

A full review of the sector is likely to be a longer-term project - and yet this report raises the hope that the government may take the impact of the current tax regime into consideration and make relevant changes in the future. 

Further reading