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Mortgage Tax Relief - Government dismisses landlord's petition

A petition signed by well over 28,000 and calling for the reversal of tax measures introduced to penalise landlords has been dismissed by the government.

The petition, from Midlands landlord Simon J Foster, urges the government to reverse the Section 24 tax change. Before Section 24 was introduced in 2017, landlords were able to deduct mortgage interest from their income tax - at that time it was also possible to offset mortgage application fees and some other loans. 

Now tax is payable on all rental income upfront, even if - combined with an income from a traditional job - it moves the landlord into a higher tax bracket. Instead, landlords now have only a basic rate reduction from their income tax liability for their finance costs of 20 per cent.

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Now the government has responded to the petition, as it is obliged to once 10,000 signatures have been reached.

The official response says: “The Government will continue to set mortgage interest relief against rental income at the basic rate of tax. The Government has a responsibility to make sure the income tax system is fair.

“The Government recognises that the private rented sector plays an important role in the UK housing market and economy. However, the Government also has a responsibility to make sure that the income tax system is fair. Under the old system, residential landlords got relief on their finance costs (including mortgage interest payments) at their marginal rate of income tax, which meant that higher rate taxpayers got a more generous tax relief than those on lower incomes.

“To address this, and make sure that all residential landlords are treated the same by the income tax system, the Government phased in a set of reforms to restrict finance cost relief to the equivalent of the basic rate of income tax. The reforms mean that all residential landlords will now receive the same amount of relief. It also reduces the disparity in income tax treatment between homeowners and landlords.

“To minimise the impact on landlords who are affected, the Government chose to act in a proportionate and gradual way. It announced this change almost two years before its implementation. The restriction, introduced in April 2017, was phased in over four years to give landlords time to adjust to the changes.

“To be clear, these reforms do not mean that tax relief on mortgage interest has been abolished. Landlords are still able to claim an income tax reduction equivalent to basic rate tax relief on the finance costs of their rental property. Residential landlords also continue to be able to claim relief at their marginal rate of income tax on the day-to-day costs incurred in letting out a property, such as letting agent fees and replacing furniture.

“The Government understands that people, including those who rent property, are worried about the cost of living challenges ahead. That’s why decisive action has been taken to support households across the UK, whilst remaining fiscally responsible.”

If the petition reaches 100,000 signatures by its closing date of May 10 it would be likely - although not guaranteed - that there would be a Parliamentary debate on the subject.

You can sign the petition here: https://petition.parliament.uk/petitions/627785

Want to comment on this story? If so...if any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals on any basis, then the post may be deleted and the individual immediately banned from posting in future.

  • Mark Wilson

    It also reduces the disparity in income tax treatment between homeowners and landlords. The free lunch is over.

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    It wasn't a disparity though. They are entirely different scenarios and can't even be compared. Investing and letting property is a business. Show me any other business where debt interest isn't a valid business expense.
    All S24 has done is reduce supply and pushed up rents. If you think that's good for renters you're nuts.

     
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    • A JR
    • 19 January 2023 07:40 AM

    The difference is landlords are running a property business (recognised or not). Individual home owners are not running a property business nor providing multiple rental properties for folk who need them.

     
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    OK Mark, if we follow your logic then Restaurant's, pub's that serve food, supermarkets on their food and water etc should not be taxed the way they are as everyone should be able to eat and drink, it's their right.
    It's a fine line, but the Government have definitely crossed it. And it is even more mind boggling because if you are a Limited Company then you don't get taxed in this way. Again , if you're self employed and a window cleaner you still pay tax along the same lines as a company that is a window cleaner. Yes I know there are differences but any loans you have to set up your business is done and can be offset against your profits.
    Lastly most of us had a 25 year mortgage, a four year lead in time is nothing compared to 25 years.
    Therefore the correct way to introduce this would be on all new mortgages and re-mortgages in order that it could be better planned by the risk owner, namely the guy paying the bills.
    Yes I agree with you that when interest rates were low btl was a very good investment. Prior to that it was reasonable and now it is challenging due to the Government and B of E sh-t- show.
    We now have soaring rents, too few rentals and a Government quite simply so self interested all they can do is inspect their own butts.
    Apart from the above I agree with your clearly intelligent well thought out short statement!!

     
     G romit

    Mark you do know better than this, by becoming a Government propagandist you've just destroyed your credibility and respect in the industry.

     
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    Mark is right from a Landlord compared to home owner point of view. This is one of the reasons they tried to level the situation up. But all the LL's complaints about offsetting legitimate costs are also valid.

     
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    He’s never had credibility. He’s resentful cos he didn’t have the guts to go out there and make money in a free market.

     
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    Homeowners pay much lower interest rates than landlords so have a massive advantage in that respect.

     
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    Mark

    Landlords are not asking for different treatment from owner occupiers in that they accept no one gets tax relief on mortgages for owner occupied properties.

    This tax charge on rental turnover is an additional burden on renters, as is the 3 or 6% stamp duty penalty on properties bought for rental instead of owner occupation.

    Incidentally I take it you don't approve of the 7.5k tax break given to everyone except landlords under the rent a room scheme?

     
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    Their response was a total cop out. Pathetic.

  • Peter  Roberts

    Bye Bye BTL.
    More houses going out of the PRS.

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    • A JR
    • 19 January 2023 07:32 AM

    It remains a monster tax on turnover.
    If I buy a lorry for my haulage business 100% of the loan interest cost is offset against tax. If I buy a house or flat to rent just 20% off the loan interest cost is deductible. My haulage business enjoys an 80% tax advantage.

    Surprisingly, crushing incentives to invest in rental housing won’t solve the coming crisis.
    Hopelessly inept the lot of them!

  • Nigel Spalding

    I don’t understand the response. It is gobbledygook written by people who don’t seem to want t to recognise that letting a property is a service and business. Why is there differentiation if you are incorporated? Contradictary laws. No landlord will vote for the tories and no tenant will either. Stupidity beyond belief.

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    Get you out of the way, clear the deck’s the big boys are coming, everything allowable for them for the business we created with section 21 out of nothing.

     G romit

    ...yup, that's the WEF's plan.

     
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    • s M
    • 19 January 2023 07:51 AM

    It should also be noted that Section 24 failure to recognise the litigate cost of interest has the effect of pushing landlords into the 40% tax bracket. As interest rate rise this will affect more people.

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    What it actually does is artificially push people into higher tax bands which then cuts other allowances.
    40% tax payers start paying tax on savings interest when they get only £500 of interest instead of £1000 if they were a basic rate tax payer.
    People start to lose Child Benefit once their income goes over £50000.
    Portfolio landlords will start losing personal allowance when their artificially calculated profit hits £100000.
    Bear in mind that mortgage interest at the new rates is going to cost tens of thousands of £s more than last year. Half of my mortgages come to the end of their current deal this year. At today's interest rates payments will increase by at least £20000 assuming the BoE doesn't increase rates further. If I spread that increase across all tenancies it would add around £40 per
    tenant per month for the interest, £8 for Section 24 and I'm not sure how much for the loss of personal allowance plus whatever increase is needed to cover general inflation on other costs. If I only looked at spreading the cost increases over the 5 affected properties the rent increases would be astronomical.

    If I was being sensible the obvious solution is to sell one or two of the unencumbered properties or the ones coming off a mortgage fix and use the money to pay down some mortgages.
    Who should I make homeless?
    The 4 young professionals in an HMO?
    The single low income chap and his daughter on UC?
    The working family with children in local schools?
    These are real people who would be majorly impacted if they had to move.
    I don't want to sell anything but Section 24 may force me to do so.

    Section 24 was a bad idea when interest rates were at rock bottom, now it's an absolute disaster for tenants.

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    Jo, very well put. Please everyone cut and paste this page and send to your MP.
    Yes it probably won't change their minds, but if this does go to a debate then hopefully they have a small view of where we are coming from.

     
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    This response by the Government is one of the most outrageous packs of lies I have ever seen and that’s saying something. I genuinely don’t think they realise that it means someone can have no income and be a higher rate taxpayer.

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    Don't be fooled, they know exactly what they are doing and why they are doing it. They are quite open about the fact that they want to reduce the private rental sector and that is one of the biggest tools for doing so. I have kept rents the same for the five years of my fixed rate mortgages but am basically having to tell tenants that either the rent goes up substantially or I have to sell and they find somewhere else. From a purely financial point of view, I should definitely sell but it's not as simple as that and in the end the tenants suffer either way. But the government are happy as they don't want people renting from private landlords because we are stopping people from owning their own homes apparently.

     
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    Hi Paul, I totally agree with your comment. I had this exact same reply several months ago when I pushed my own MP whom forwarded it to the Levelling Up MP.
    It's not lies, but it is how they look at this situation. We need to demonstrate our point of view and the disastrous consequences of Section 24.
    None of the so called Landlord Group's have explained the situation as well as the comments on this page.

     
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    Oh well … let them eat cake 🎂, I am confident that the government have this all worked out 🤔 and have the necessary properties available for the tsunami of evictions to come in 2023 👀🤫….. well maybe not 😂

     G romit

    Tenant evictions & homelessness is just COLLATERAL damage in the WEF's oooops Government's "Grand Plan"!

     
  • Kevin

    Half the problem is that whilst money was cheap, the numbers still worked better with maximum leverage (and many did). Now that rates have risen, this is no longer the case and many need to sell to reduce debt.. With other reforms and the threat of rent control putting off new landlords joining the sector, there is no one to sell to that will keep the existing tenants in a home. I see major trouble ahead.

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    So it is fair to charge some people at a higher percentage rate of tax than others, but not fair to give those same people tax relief at the higher rate. The answer as expected is total b******s

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    Peter, no they don’t want to reduce it, they just want new owners.

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    What total rubbish from the govt. It's clearly totally unfair to tax landlords who own properties in their own name differently from a limited company and all other businesses. Also it pushes people unfairly into a higher rate tax bracket which has wider implications. Finally its unfair on tenants whose landlords have mortgages, because they will have to pay more rent.

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    I’m so ashamed to say I voted for this lot. Crooked , deaf, and disastrous. Jo above has hit the nail on the head.They don’t see the damage their ignorance causes. Labour would be as bad if not worse. We really need to get behind a new pro people pro business party and get away from the grand standing and self serving that have destroyed our country.

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    Labour WILL be worse. Sadly the Tories are no longer the party of business (Boris reportedly said F*** business during Brexit negotiations), low taxes and hard work. They have turned into Labour themselves since the 2016 vote I would say.

     
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    Section 24 is unfair and a disaster for tenants. I don't think the government will scrap section 24 sadly as they don't want to be seen as favouring 'Greedy Landlords'. They should maybe consider higher tax reliefs for landlords who provide some sort of new assured tenancy. This way it will be seen that both sides benefiting.

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    This drivel in response to the petition against the turnover tax has to be one of the most outrageous pieces of nonsense I have ever seen from a Government department. They either dont understand how the tax system works or they are being deliberately disingenuous. 

    Lets pull their lies apart. I suggest everyone copies this and sends it to their MP.

    "The Government will continue to set mortgage interest relief against rental income at the basic rate of tax." 

    This is simply untrue. Mortgage interest is now added to income, where previously it was not, and this gross figure defines the rental income of the individual. A 20% credit is then applied, which does not reduce the income. So mortgage interest is not set against rental income as a relief at all. To illustrate this, imagine if MPs second home expenses were treated the same way, for similar spurious and vindictive reasons. An MP on the basic £85k salary claiming £40k of second home expenses would now be treated as having earnings of £125k - then they would be given a 20% credit, meaning they would pay 20% tax on the £40k - £8000.However, because their income has now been inflated to £125k, their personal allowance is fully clawed back, resulting in them paying 40% on £12500 - another £5000 in tax. So this change would increase the tax bill for this MP by £13000 per year - equivalent to adding 15%age points to every tax band, including the nil rate personal allowance. 
    "The Government has a responsibility to make sure the income tax system is fair."

    It doesn't get more unfair than taxing people on income they have not received 

    "The Government recognises that the private rented sector plays an important role in the UK housing market and economy. However, the Government also has a responsibility to make sure that the income tax system is fair. Under the old system, residential landlords got relief on their finance costs (including mortgage interest payments) at their marginal rate of income tax, which meant that higher rate taxpayers got a more generous tax relief than those on lower incomes."

    Hard to know how to deal with such an absurd statement. If you run a business, whether as a sole trader, a partnership or a limited company, you are taxed on your profits - income less expenses. If your sales are £1.1m and your expenses £1m you pay the same tax as you would if your sales are £110k and your expenses are £10k. That's fair. The tax system is not being "generous" to the first business compared with the second. 

    "To address this, and make sure that all residential landlords are treated the same by the income tax system, the Government phased in a set of reforms to restrict finance cost relief to the equivalent of the basic rate of income tax. The reforms mean that all residential landlords will now receive the same amount of relief."

    Again, this is simply untrue. Corporate landlords are not affected by this system - their finance expenses remain fully deductible. Wealthy landlords without mortgages are also unaffected. However, those who have behaved entrepreneurially to grow their business are faced with a situation where its possible, with rising interest rates, to to have zero income yet be treated as a 40% taxpayer, and be faced with a tax bill they have no means of paying (and we will have your child benefit, too). Example - someone who earns £30k from rentals but has a £30k interest cost is now deemed to earn £60k. If mortgage rates double, they earn nothing but are still treated by HMRC as if they earn £60k.  

    "It also reduces the disparity in income tax treatment between homeowners and landlords."

    Another completely absurd statement. If you run a car rental company, you can offset the cost of financing your fleet against your income. Its nothing to do with people who buy a car for their own use. 

    "To minimise the impact on landlords who are affected, the Government chose to act in a proportionate and gradual way. It announced this change almost two years before its implementation. The restriction, introduced in April 2017, was phased in over four years to give landlords time to adjust to the changes."

    And just how were landlords supposed to adjust? Incorporation is an expensive and difficult process. The only "adjustment" that is possible is to get out of the business. 

    "To be clear, these reforms do not mean that tax relief on mortgage interest has been abolished. Landlords are still able to claim an income tax reduction equivalent to basic rate tax relief on the finance costs of their rental property. Residential landlords also continue to be able to claim relief at their marginal rate of income tax on the day-to-day costs incurred in letting out a property, such as letting agent fees and replacing furniture."

    As we have established, if your income determines your tax band without deducting interest, there is no tax relief on mortgage interest. Only a separate 20% credit. 

    "The Government understands that people, including those who rent property, are worried about the cost of living challenges ahead. That’s why decisive action has been taken to support households across the UK, whilst remaining fiscally responsible."

    And they have done absolutely nothing to help people who rent property other than to propel them towards certain bankruptcy

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    May I say, excellent post. It's sad that we have to put up with this nonsense, and it is difficult to explain to tenants.

     
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    Excellent explanation.

     
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    Paul well done for an excellent explanation of the facts. In addition just cut and paste to my local MP, Helen Grant.

     
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    Why is it fair that a basic rate tax payer get full tax relief, but a higher rate tax payer loses 20% of their costs?????? I don't think they understand or want to understand. It is the way it is and the government wishes to discourage landlords and wants to continue creaming money off of them in this manner. It is politically acceptable to kick landlords.

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    Another thing to consider is the appetite for risk that various landlords have.
    People with one or two properties tend to be far more risk averse and only let to squeaky clean, gold plated tenants. Tenants who fully pass referencing and qualify for rent guarantee insurance.
    Those of us with more properties are often more flexible and will take a chance on people who fail referencing. We don't have the option of RGI on those tenants. There are numerous reasons why people fail. The wrong type of employment contract or lack of a credit history are the two main ones. These are usually not people who have made mistakes, they simply don't fit the referencing criteria closely enough.

    Then there are the low income, benefit assisted tenants who are never going to pass affordability referencing.

    If we are taxed out of the market where will those tenants go?
    They usually either aren't looking for Social Housing or have been told how long the waiting list is and that they aren't in a priority situation.
    The big corporate landlords wouldn't touch them because they fail referencing.
    At least 25% of my tenants failed referencing at the point they became my tenant. In almost all cases they have been excellent tenants. Maybe because they have been turned down elsewhere they don't want to risk losing a home once they finally get accepted?

    So if landlords like me are taxed so much we have to start reducing our portfolios where are our less than gold plated tenants supposed to live?

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    You are probably right. They are good and know what they have is the best they are ever going to get and if they get kicked out they will be somewhere else with the same/similar/different problems.

    The Councils will have to take them and fill up the B&Bs and hotels. I fear with all the immigration issues that it's going to be hard for UK citizens to even book a hotel room in the UK in the coming years as it will be full of benefit claimants and Universal Credit people. There's a shortage of hotels as is in certain areas. We will have to holiday abroad.

     
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    Theyre already gone. Rents have been forced up because of sction 24 and they have frozen housing benefit. This means they cant afford to rent in the private sector. So not only have they screwed the landlords, theyve screwed the social tenants as well. A lose lose lose situation.

     
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    Why aren't more people signing the petition? Only 514 in the last 24 hours, requiring an average of 644 per day to reach 100k target. It picked up for a few days when Mario was pushing it, now it's slowed down.

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    Problem is even if 100,000 sign they will still trot out the same nonsense in response. They rely on the fact that non landlords won't understand the problem and just assume landlords are being greedy. With interest rates going up it won't be long before a landlord with zero income will still have to pay tax, then maybe there will be a legal challenge at some point, as clearly unfair and unethical to tax only some landlords in this way.

     
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    Why aren't the NRLA making loud noises about this to get the message across to the millions of landlords out there who haven't signed yet.
    Are they afraid it might upset the government!!!!!!
    I have had all my family including Daughters in law and their mother signied up!

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    Because we have Ben Beadle running it. He would probably open with “we welcome this” or some other nonsense.

     
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    • A JR
    • 22 January 2023 15:51 PM

    Completely agree I am appalled by the NRLA’s failure to promote this vital petition.
    The NRLA has never moved away from its limp ‘appeasement’ position and look where it has got us!
    Really, it needs to change tack and quickly.


     
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    I hesitate to point it out, but higher tax payers get tax relief at their highest rate on pension contributions.

    Surely the same twisted logic in this drivel would apply to tax relief on pension contributions if the government wanted to show consistency of treatment - but does this twisted logic only apply to penalise Landlords?

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    I simply cannot understand the logic how an 'income tax' item lead to a negative income. Thanks to all my hard work since my a-levels, I'm a bit lucky/unlucky now standing at that 100k tax trap. So the marginal tax rate for me is unfortunately 60% (not taking loss of child benefit into account). With a 700k property let for 650pw with 400k BTL mortgage (below 60% LTV) at 5% interest rate. Without considering any service charge, ground rent, management fees, with the current income tax scheme, I'm losing 2500 pounds a year?? which means I am taxed with some non-existing income?

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    Kailun Xu. I find it hard to comprehend that landlords are prepared to take on so much debt just to house other people and be so badly treated by Government who then complain about homelessness and despise the providers of the accommodation.
    This one seems to be a very high rent putting you at greater risk if Tenants vacate / get gaps or defaults. It’s certainly much higher rent than I am getting.
    However I know some new high rise Flats can cost this amount to purchase and rent, that I see as unsustainable.
    Then we have Mr Gove in dream land scrapping Section
    21, to maximise damage. Levelling house letting business to the ground creating an unfairer renting system for Tenant & Landlord alike.
    The landlord will not be prepared to provide the Accommodation and the Tenant will not be able to find places to Rent.
    Well done Michael Gove go to the top of the class of morons.

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