In 2013, landlords received a record £14 billion in tax breaks, revealed figures that uncover the expanding buy-to-let market following the financial crisis.
Around £6.3 billion was declared against the cost of mortgage interest alone during the 2012-13 financial year, found HM Revenue & Customs (HMRC).
The data also discovered that the amount of landlords has risen by over a third in the last six years. In the 2012-13 financial year, 2.1m taxpayers declared income from property, up from 1.5m in 2007-08.
Homelessness charity Shelter has called for an “urgent review” of the tax treatment of landlords, who can also deduct the cost of insurance, maintenance and repairs, utility bills, legal fees and other expenses from their income. Owner-occupiers cannot do the same.
Campbell Robb, Chief Executive of Shelter, says: “In the context of looming welfare cuts and a dramatic shortage of homes, all those struggling to keep up with sky-high housing costs will be shocked to hear that a massive £14 billion has been given in tax breaks for landlords in just a year.
“A fraction of this amount would go a long way towards fixing our housing shortage, and giving millions of priced-out families and young people the chance of a stable home.
“In the Queen’s Speech, the new Government must start to set out a comprehensive plan that will finally build the homes this country desperately needs and an urgent review of these huge tax breaks must be part of this.”1
The £6.3 billion tax break for the cost of paying interest on a buy-to-let mortgage is the highest ever, since the Bank of England (BoE) reduced interest rates to 0.5% after the financial crisis.
Mortgage interest relief at source (Miras) was launched in 1983 for homeowners to encourage homeownership. It was abolished in 2000 by then chancellor of the exchequer Gordon Brown, who called it “a middle class perk”1.
However, landlords can still claim mortgage interest as a business expense. Critics say that these tax breaks give landlords a huge financial advantage over ordinary owner-occupiers.
Policy Manager of lobby group Generation Rent, Seb Klier, explains: “When you get a taxpayer subsidy to borrow money, it’s no surprise that more people are choosing to invest in property instead of, say, buying shares in companies, which actually create jobs.
“The tax system also puts landlords at an advantage over potential owner-occupiers when competing for the limited supply of houses and it’s those thwarted first time buyers who end up paying off the mortgage anyway in rents.
“We need to stop subsidising property investment and use that money to build more homes instead.”1
Chief Executive of the National Landlords Association (NLA), Richard Lambert, says that NLA members do not receive unreasonable tax privileges: “Letting out property is a business like any other and is therefore treated and taxed as such, rather than as an investment.
“Landlords are required to pay tax on the profit they make and like any other business, are entitled to offset their costs incurred from the day-to-day running of the property against tax. They don’t receive any special subsidies compared with other businesses.”
Lambert says that previous governments have treated landlords as businesses, which has encouraged better practise in the rental sector. He also reveals that NLA research found 23% of landlords with a single property break even or make a loss.
He adds: “To discriminate against landlords and remove these reliefs, which are offered to other businesses, would cut a swathe through their profitability calculations and prompt many to sell up and invest elsewhere. That would mean even higher rents for those forced to chase after a shrinking pool of rented housing.”1
Council of Mortgage Lenders (CML) statistics uncovered that landlords were approved almost as many mortgages as first time buyers in January.
In April, Wriglesworth Consultancy conducted research for the lender Landbay, which discovered that landlords enjoyed 1,400% returns since 1996, much more than the rewards for shares, bonds or cash.