Tax Rises are Slowing Housing Investment

In April 2017, the government began phasing in tax relief changes for residential landlords. This means that the amount of income tax relief a landlord can claim on finance related to their residential properties has been cut to the basic rate of income tax. Analysis released today by the Office for Budget Responsibility (OBR) confirms the impact of tax increases on rented housing.

What is the Impact of Tax Rises?

In April 2017, the government reduced the amount of income relief that landlords can claim to the basic rate of tax. For landlords who pay towards the higher end of the tax brackets, the profit margins could be considerably less. For some landlords, their investment will be less affected, or to a minimal extent, as the tax rises are less likely to affect landlords who are paying near the basic tax rate at the moment.

In its Economic and Fiscal Outlook, published on the 13th of March 2018, the OBR warns of “subdued growth in residential investment”. This conclusion comes following the string of tax hikes on private rented housing, including a stamp duty levy (imposing of tax) on the purchase of buy-to-let homes, as well as the restriction on mortgage interest relief.

Tax Rises are Slowing Housing Investment

Tax Rises are Slowing Housing Investment

The Importance of a Healthy Rental Market

It’s important to keep our housing market healthy (and rental properties are a large part of this), in order to keep enough decent quality homes available to anyone who needs them, at an affordable price on an individual basis.

Alan Ward, Chair of the Residential Landlords Association, recognises the importance of a healthy rental market too: “Today’s assessment by the OBR demonstrates the folly of taxing the supply of new homes to rent. It is more important than ever that we recognise the dynamic role the rental market can play in swiftly responding to the country’s ever-changing housing needs.”

With so many of the UK’s ever-expanding population reliant on privately rented accommodation, the investment that is choked-off could have an unwanted impact. As Ward further comments, “The Government should come forward with a package of pro-growth tax and planning policies to support private landlords who want to invest in the new housing the country needs if renters are to be able to find the accommodation they want”.

Building more and more homes is certainly one way to solve the housing crisis in Britain, but in itself, this is not enough. Providing incentives for landlords and other existing property owners will ensure it is worthwhile to let out homes to tenants that need it, as well as providing a healthy financial return for those landlords.

As a landlord, ensuring your investments are protected from any changes in the system is of paramount importance to keep your income healthy and to be sure you’re affected as little as possible. Check out Just Landlords’ bespoke Landlord Insurance for more information.

For more detailed information on the tax relief changes for residential landlords, head to this article on Landlord News.


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