Buy-to-let landlords are being unfairly penalised for the housing crisis, according to a new report by the Institute of Economic Affairs (IEA).
In its latest publication, the think tank said the government’s recent tax changes for buy-to-let property owners defied “any basic economic analysis”.
The report, seen exclusively by Telegraph Money, has called for a major overhaul of the way properties, particularly homes in the PRS, are taxed, especially as it believes that landlords are being “discriminated against” compared with owner-occupiers.
The IEA pointed out that in some instances, landlords will face an effective tax rate of more than 100% after 2021, when tough new rules fully take effect.
The authors of the report, Rosalind Beck and Philip Booth, two academics specialising in the property market, warn that the changes are likely to result in higher rents for tenants and a fall in the supply of rental housing as landlords exit the sector altogether.
The report warns that decent landlords are likely to be replaced by less reputable investors as a result of the tax changes.
Booth commented: “Recent tax changes to private rented housing will raise rents and reduce the supply of houses for rent.
“The government, under policies set in train by Mr [George] Osborne, is subjecting private landlords to a sustained assault by increasing stamp duty and not allowing finance costs to be fully deducted for tax purposes.
“This policy contradicts the basic principles of sound tax policy and the Treasury’s justifications are disingenuous. The policy may create situations in which over 100% of a landlord’s profit is due in tax.”
The IEA report suggests that the government should reverse the changes to stamp duty and mortgage relief. Such changes have made the tax system “more complex and less economically coherent”, the authors warn.
The think tank said discrimination between types of property should end, this means that homes held in corporate vehicles should not be treated in a more beneficial way than those owned by an individual. Even if it were replaced by another form of property tax, stamp duty should be abolished altogether.
“The Government has changed the tax system in a way which leads to private landlords being taxed more harshly than other forms of business,” the report said.