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Category: tax
Landlords calling for mortgage interest tax relief to be reinstated have received disappointing news from the Government, who have rejected a petition calling for the reversal.
The 28,000 signatories to the petition were not enough to sway the government on the Section 24 tax change. Mortgage interest tax relief withdrawal was first discussed in the 2015 Summer Budget, when George Osbourne was Chancellor.
The phased withdrawal subsequently began in April 2017, when Section 24 was made law. This was one of the bigger issues in the industry that caused landlords to review their position, and was a contributory factor in some concluding that - in combination with other changes – they would exit the market.
With increasing demand from tenants for rental housing, amidst a private rental sector struggling to keep up in numbers of available properties, landlord groups have been committed to make the government review its position on encouraging landlords to invest.
The petition, organized by landlord Simon Foster from the Midlands, falls within the theme of that message.
Within the petition, Mr. Foster stated:
“We want the Government to reinstate the ability of landlords to set the full amount of mortgage interest against rental income, before tax is calculated.
“Like many self-employed business people I am a small, well-established private landlord that is now struggling to make any money from letting properties.
“Unless the ability to offset mortgage interest against rental income is reinstated I will like many be forced to sell my properties. This could reduce the amount of properties available on the private rental market.”
Government response
As the petition reached 10,000 signatures, the government had to respond to the petition. The official government response:
“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.”
However, if the petition reaches 100,000 signatures before its closing date on the 10th of May, there is a possibility that there would be a Parliamentary debate, but it is important to note that it is not guaranteed.
Maxine Fothergill, former President of Propertymark, is actively encouraging all landlords and letting agents to sign the petition, in order to convince ministers that the removal of the tax break is unreasonable and will add further strain to the private rental sector.
Sign the petition here.
