Buy-to-let landlords are using loopholes to avoid new taxes which come into effect April of next year, with many saying that they intend to hike up rents, according to a new report.
Chancellor George Osborne said he introduced the tax changes, announced in last year’s budget, to level the tax playing field between buy-to-let landlords and homeowners.
Currently, buy-to-let landlords can offset their entire mortgage interest costs against the rent they receive, but once the changes come into full effect by 2021, only 20 per cent of the interest will be given tax relief.
The report, Buy to Let Britain, published by mortgage lender Kent Reliance, surveyed 900 landlords and found that 11 per cent had already taken advantage of a loophole to avoid the new taxes – by setting up their own limited companies and transferring their properties into them, or by transferring their properties to a spouse or family member who is on a lower tax rate.
One in four landlords said while they had not yet taken advantage of these loopholes, they were considering doing so soon. A third of those surveyed said they were going to hike up rents in the next six months, with the majority citing the tax changes as the main reason.
Average rent in the UK has soared to a record high of £881 a month, and landlords in the survey said they intended to hike up rents by more than 5 per cent – equivalent to a £547 hike for the year for each household on average.
A supply boost earlier this year eased pressure on rent but the report highlighted the chronic problem of long-term supply shortages, which push rent prices up. The increased cost of renting a property because of tax changes and other measures such as banning letting fees, the mortgage lender said, may only cause further rent inflation.
Kent Reliance highlighted that solving the housing crisis will necessitate a massive housebuilding programme and that measures announced by chancellor Phillip Hammond were not enough.
“The Chancellor’s moves to boost the supply of housing suggests a recognition of the problem,” the reported noted. “However, delivery of the sheer number of homes we need each year will not be an easy task, and the provision for 40,000 new affordable homes, for instance, will not be enough.
“In the meantime, the private rental sector will continue to pick up the slack. This will sustain tenant demand, underpinning landlords’ power to increase rents to compensate for the higher costs of running a property portfolio.”
Unite assistant general secretary Steve Turner argued that buy-to-let landlords using loopholes to avoid tax and their continued commitment to hiking rents meant bold changes from the government were needed.
“Solving the housing crisis and protecting private tenants facing spiralling rents will require a lot more than merely tinkering at the edges,” he said. “The latest tax changes for buy-to-let landlords will not be effective if there are so many loopholes that allow them to recover their lost cash, including passing on the cost to their tenants.
“If anything, this situation shows the necessity for strong regulation. The UK rental market is the least regulated in all of Europe,” he added. “We need rent controls, which have been shown to work in many countries, including Germany and Sweden, and we must ensure that private landlords are registered and licenced and that tenants’ rights are protected.”
“Lack of genuinely affordable housing stock is another problem that’s driving housing costs out of control,” Turner argued. “We must embark on massive council home building programme — we need at least 240,000 homes built each and every year to keep up with demand.
“A housebuilding programme itself confers economic benefits beyond helping drive down housing costs – our research has shown that for every £1 spent on housing construction, an extra £2.09 is generated in the economy. Each £1 also generates a 56p return to the Exchequer.”
Find out more about Unite’s strategy for solving the housing crisis here.