I recently attended the NRLA’s annual conference in Birmingham and a theme that still dominates discussion in the industry is the tax treatment of landlords. 

Department of Levelling Up Housing and Communities Secretary of State Michael Gove (wisely attending the session via Teams rather than in person) and Clive Betts, Chair of the DLUHC Select Committee, both faced questions over whether the Government should revisit the removal of Section 24 and the phasing out of mortgage interest relief to incentivise landlords to extend the supply of privately rented homes.

Another area of angst amongst landlords is the beneficial tax treatment afforded to short-term holiday lets compared to the long-term rental market. 

Of course, tax is a decision for HM Treasury but the fact that these questions still arise nearly three years after mortgage interest relief was removed and replaced with the 20 per cent tax credit shows how central this issue remains to the landlord community. 

The successive Bank of England interest rate increases since the start of last year, and the associated rise in mortgage rates, have brought the issue to the fore. 

We recently surveyed over 1,000 landlords for our latest report, The rise of the limited company landlord. It showed that landlords who hold all their properties within a limited company structure, 23 per cent of the respondents, are generally newer and younger operators who have built their portfolios within a limited company from the off. 

Just under a third of landlords, 31 per cent hold a mix of limited company and personal name property, but the largest proportion, 34 per cent, hold all properties within personal name. 

And it is those landlords who are facing the challenge of being taxed on rental income, rather than the profits of their lettings activity. During times of lower interest rates, this was less of an issue than it is today when mortgage rates have increased. 

The challenge landlords face is incorporating those properties. Our research showed that whilst 33 per cent of landlords with property in their own names plan to incorporate within the next three years, 37 per cent believe it is unlikely that they will do so. Tax was cited as the main barrier for incorporation, followed by landlords not knowing enough about this route. 

Limited company landlord ownership has grown significantly in response to George Osborne’s – there were five times as many special purpose vehicles established by limited company landlords last year than there were in 2015 – and it is only going to get bigger. 

Three-quarters of landlords said that the next property they purchase would be within a limited company structure, compared to just 7% who said they would buy it in their personal name as an individual. 

However, at a time of an acute supply and demand imbalance for rental property, it’s important that those who hold their property in their personal name remain committed to the sector. 

Reforming the tax treatment of landlord is not high on this Government’s agenda, so it’s unlikely that we can expect any change in this area soon.

However, it should be a focus for the next Government as part of a range of measures to ensure the private rented sector has the supply necessary to meet the nation’s rental needs.

We believe that the limited company route will be the preferred option for landlords purchasing new property going forward, but landlords with property in personal name need a fairer, more balanced fiscal approach to encourage continued participation in the sector.    

* Richard Rowntree is Managing Director of Mortgages at Paragon Bank *