Landlords and tenants to suffer if new tax laws are not reversed.

Tue 01 Nov 2016

Landlords and tenants to suffer if new tax laws are not reversed.


In April 2017, Britain is set to start phasing in new tax laws which will prevent landlords from claiming full mortgage interest tax relief on their rental income. By 2020 the process will be complete and landlords will only be able to offset mortgage or other loan interest against their income at the level of basic rate tax.  For many landlords who are heavily financed this will lead to a significant decrease in the profitability of their properties, and may even push them into a loss situation. This move has been widely opposed by landlords and tenants alike who believe that it will drive rents upwards and lead to a slow-down in the rental market.

History supports this assertion; the Irish Government first imposed a similar policy in 1998 and as a direct result, rents increased 50% over a three-year period. The policy was then abolished in 2002 before being re-introduced in 2009.  However, a decision has just been made by the government in Ireland to reverse this policy again.  ‘Axe The Tenant Tax’, an organisation set up to challenge this tax in Britain, is urging Chancellor Philip Hammond to make a similar U-turn in his Autumn Statement.  They feel that the Irish experience should be taken as a salutary warning and provide an opportunity to prevent a disastrous policy mistake. 

Katie Law is the Lettings Business Development Manager at Millerson Property Agents, with 10 years’ experience in the residential lettings market.  She currently looksafter over 1000 landlords across Cornwall.  The majority of these properties are owned by small investors who are already struggling to make their properties work for them effectively.  Katie is adamant that the government should back down on this issue.  ‘This tax will stifle the small investor who will be put off participating in the rental market.  Since George Osborne announced the government’s intentions earlier in the year, we have already noticed some of our ‘accidental landlords’ putting their properties up for sale when tenants give notice.  This is already leading to a contraction of the market and, in turn, to suffering, as tenants are unable to find properties to rent within their budget.”  Katie goes on to explain, “In Cornwall we are already seeing demand for rental properties outstripping supply, and if the government interferes with the market in this way it will lead to artificially inflated rental prices. The government claims to want to secure affordability for tenants but this will have the directly opposite effect.”

The tax change will also create a knock-on effect for first-time buyers who, facing increased rental bills, will find it harder than ever to save up enough money raise a deposit to get a foot on the housing ladder.  Reversing the policy would positively impact on the supply of housing in the U.K. which is one of the government’s key goals.

It is clear that this is a move intended to raise revenue for the cash-strapped exchequer coffers, but Katie Law believes that it is a very short-sighted and ill thought-out plan which will have a far-reaching impact.  She hopes that the fact that we have a new Chancellor since the initial announcement will make a back-down more likely.

Millerson is a Cornish property agency with twelve offices across the county covering sales, lettings and commercial transactions.

Written by : Jeremy Miller, Operations Partner, Millerson


October 2016