There has been a mini media storm this week over a report released by the Intergenerational Foundation, which claims that changes need to be made because Buy to Let tax ‘breaks’ are unfair. The rules allowing landlords to offset mortgage interest payments and repairs against income tax are labelled an ‘upper middle-class perk’. And the group has also said that BTL should be thought of as an investment not a business. Quite simply, all of this is not just wrong, but disrespectful and dangerous. It’s disappointing to see a misguided report receive so much coverage.
To state that landlords, who work hard to provide a vital housing service, are not operating a business is staggering. And a BTL loan is a commercial mortgage. Furthermore, Rentify helps thousands of landlords across the UK on a daily basis and we just cannot see how class has anything to do with BTL. To claim otherwise is insulting to the many landlords (from any background) who have taken on great risks to make a success of their rentals. The report goes on to suggest that ‘tax breaks’ are granted to landlords because many MPs are involved in BTL. But has the Foundation considered that these ‘tax breaks’ are in place not because MPs operate BTL but because they need it as a fundamental source of housing for the population?
And so what of these unfair ‘tax breaks’? Once it’s established that BTL is a business, then there is nothing unusual about its tax arrangements. Repairs and mortgage interest form part of the costs of running your business; they eat into your profits and so it’s perfectly reasonable that they are tax-deductible. And remember that basic improvements to properties and initial work done to bring it up to renting standards are not tax-deductible, so there are already restrictions in place. It’s not as if yields are astronomical either – on average they have settled at around 5%. To remove these fair and essential tax arrangements could wreck PRS, making landlords insolvent and causing huge rent hikes. This is especially true when you consider that interest rates will increase at some point.
Rentify realises that the system should be fair for everyone and there may be ways to improve fairness in PRS. It would be foolish to say the report raises no legitimate points, for example on Capital Gains Tax and the specifics of wear and tear. But the aggressive tone of the report and its focus on denigrating legitimate and necessary tax arrangements is at best unhelpful and, at worse, dangerous.