UK Government Report Suggests Tax Breaks For Buy-To-Let Landlords

by Robert Lee, Tax-News.com, London

28 October 2008

A government-commissioned report has advised that buy-to-let landlords should get more tax breaks to encourage them to buy up more property.

The report, by Julie Rugg of the University of York, was commissioned to explore ways in which the property rental industry can be better regulated so that good landlords are rewarded and bad landlords discouraged.

The report proposed that changes to the tax regime should be framed to encourage landlords to view their letting activity as a business rather than as an investment activity.

The study also noted that there exists scope for reviewing the taxation of property improvement and suggested the removal of any disincentives. “For example, immediate tax relief is not available on improvement works and landlords have to wait until they sell property, to gain relief against capital gains tax,” the report stated.

Stamp duty may also be discouraging smaller property developers from expanding their portfolio, the report said. The current stamp duty charge stands at 1% for property bought in excess of GBP175,000, 3% over GBP250,000, and 4% over GBP500,000.

There are believed to be between 300,000 and 500,000 buy-to-let landlords making up 17% of the UK mortgage market with just over a million mortgages.

"It is crucial that we have a high quality sector that works well for both landlords and tenants, and encourages mobility," said Housing Minister Margaret Beckett.

The report also suggests a license fee of GBP50 that if adopted would raise GBP60 million to help fund some sort of ‘housing justice system’. However, this idea has already been criticised by some as another opportunity for the government to levy yet another ‘stealth’ tax.

Author Julie Rugg said: "We hope the review has signalled the government's intention to seek a better working relationship with the sector. We now have a much stronger evidence base, and the opportunity to frame more informed policy. It will be interesting to see what happens next."

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