The Government has responded to a petition opposing changes to tax relief on buy-to-let mortgages announced in the summer budget.
From April 2017 onwards landlords will only be aim to claim basic rate, not higher rate, tax relief on mortgage payments. Accountants have warned the move will severely dent landlords’ profits.
The petition opposing the move has attracted more than 23,000 signatures since being set up by London-based landlord Ruhal Uddin.
In its response to the petition, the Government said it was committed to a fair tax system. It maintained that the move will affect fewer than one in five landlords, that residential property is a passive investment like shareholding, and that the interest relief is unfair as it is not available to homeowners.
The statement from HM Treasury said: “Landlords are currently able to offset their mortgage interest and other finance costs against their property income, reducing their tax liability. This relief is not available for ordinary homebuyers and not available to those investing in other assets such as shares. Currently the landlords with the largest incomes benefit the most, receiving relief at their marginal tax rates of 40% or 45%.
“By restricting finance cost relief available to the basic rate of income tax (20%) all finance costs incurred by individual landlords will be treated the same by the tax system. This recognises the benefits to the economy that investment in property can bring but ensures the landlords with the largest incomes will no longer benefit from higher rates of tax relief.
“By unifying the treatment of finance costs for all individual landlords, the Government is reducing the distortion between property investment and investment in other assets, and reducing the advantage landlords may have in the property market over ordinary homebuyers.”
However, the Residential Landlord Association (RLA) and Scottish Association of Landlords (SAL) asserted that the move will affect many more landlords and tenants than claimed, forcing up rents, cutting supply and damaging the private rental sector.
RLA chairman Alan Ward said: “The Government continues to peddle the line that letting out residential property is a passive investment, while piling on new regulations and responsibilities like immigration checks, minimum energy efficiency standards and licensing. It is a false comparison. The letting of residential property needs to be recognised as the trading business it is and be allowed to offset legitimate business costs, including mortgage interest.
“Equally bogus is the comparison with homeowners. As the Institute for Fiscal studies has demonstrated, buy-to-let landlords are already taxed more heavily than homeowners. Unlike homeowners, landlords pay income tax on rental profits and capital gains tax when a property is sold. If the Government is going to make these sort of comparisons they should be honest and fair.”