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Private rental sector shortage blamed on tax system

Wednesday 29th February 2012

The current tax treatment of private landlords is stifling investment in the sector and major changes are required if the supply of rented accommodation is to be boosted to overcome the shortage, according to a landlord organisation.

In a report produced for the Residential Landlords Association at the end of last year, Professor Michael Ball of Reading University pointed to the £3.5billion the private rented sector contributes each year to the Treasury as a result of taxes paid which no other housing tenure has to face. Given that it is tenants who end up paying for such taxes through higher rents, this equates to £1000 per tenancy in the UK.

With the spectre of large-scale disinvestment in the sector once the housing market improves, the RLA is calling on the Chancellor to make stimulating the rented sector a key part of the forthcoming Budget to boost supply and keep down rents.

Much of the burden falling on the sector is because of landlords being treated as investors and not businesses. This means that tax reliefs applying to businesses which recognise and encourage investment do not apply to landlords, even where they may have a number of properties.

The RLA has formulated proposals for tax reform which would level the playing field and attract greater investment in the sector. Although the changes would involve limited tax reliefs these costs to the Exchequer would be off-set by increased tax receipts from new, and larger, landlords and the investment that is made in renovating properties when they change hands or enter the rental market for the first time.

Among the measures the RLA is calling for is roll–over relief for capital gains when a rental property is sold to a first-time buyer or reinvested in rental property. This would help first-time buyers to get a foot hold on the housing ladder while freeing up much needed rental accommodation.

Also included in the package sought are inclusion for a limited period of rental property in Self-Invested Pension Plans, with safeguards to avoid abuses and the introduction of capital allowances for enhanced repair and refurbishment.

RLA Chairman Alan Ward said: "With rapidly increasing demand for rented accommodation and a supply shortage driving up rents, there is a real need for changes to the tax treatment of the sector to encourage it to invest. It is a nonsense that when landlords are running a business, that they should be hampered by a tax system that treats them as investors.

"Our proposals for change are cost neutral as they recognise the revenue that will flow from income to new and larger landlords and that every £1 invested in the sector provides a return to the economy of £3.50 through expenditure on building work and furniture."

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Mike Jones

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