Former Conservative party leader Iain Duncan Smith has spoken out against his party’s treatment of landlords, claimed Conservative housing policy ‘misses the point’ and called for buy-to-let tax changes to be reviewed.
Writing in Conservative Home Duncan Smith launched a stinging attack on the government’s lack of thinking behind housing policy and said they should ‘reconsider the way we treat private landlords who buy houses to rent’.
As well as demanding that politicians in his own camp realise the value that private landlords have in providing quality homes to large numbers of British families, Duncan Smith also called on Prime Minister Theresa May to scrap the move to taper tax relief on buy-to-let mortgages.
Iain Duncan Smith: We are now in danger of missing the point [on housing]
He wrote: ‘We are now in danger of missing the point, for what is certain is that even if we do achieve our housebuilding target, there will still be a continuing growth in demand and a significant part of this will have to be available through private landlords.
‘It is time to review [George] Osborne’s tax changes on buy-to-let landlords.’
In 2015 the former Chancellor George Osborne announced a series of measures that he claimed would rebalance the housing scales in favour of first-time buyers and away from landlords.
These included the introduction of a 3 per cent surcharge on stamp duty payable on the purchase of buy-to-let properties and second homes, the scrapping of landlords’ wear and tear allowance and the phased reduction of tax relief on buy-to-let mortgage interest, which began in April this year.
Landlords blame George Osborne for running them out of the market
Over the next three years, this tax relief will taper down from the landlord’s marginal rate of tax and be replaced with a 20 per cent tax credit by 2020, hitting profits for many landlords hard.
For more on these changes read our in depth analysis.
Duncan Smith wrote: ‘A large number of them are talking about no longer buying to let, and they blame it on George Osborne’s decision to impose a stamp duty levy on the purchase of homes to rent, to restrict mortgage interest relief to the basic rate of income tax, and to tax a landlord’s turnover rather than profits.
‘This, they believe, has led to private landlords scaling back their operations or even leaving the sector altogether.
‘We should all be concerned about this, because private landlords are a significant provider of the additional housing we need. We won’t be able to provide all the housing in the medium term through aggressive building programmes alone. We will need other sources of accommodation, as well.’
In addition to reviewing the tax changes announced by Osborne and enforced by the latest Chancellor Philip Hammond, Duncan Smith said the government should encourage landlords to invest more with devices such as ‘VAT relief on conversions or even capital allowances’.
Activity in the buy-to-let market has been severely affected by a series of tax changes
Buy-to-let transactions fell significantly in April 2016 following a spike in purchases before the 3 per cent stamp duty surcharge was applied. While remortgage activity has recovered, the number of new buy-to-lets funded by mortgages has remained slumped.
‘It’s no wonder buy-to-let purchases have fallen dramatically,’ Duncan Smith wrote.
‘Despite what has been said and written, they’re not enormous property magnates, for the most part, but often people using the market to help provide retirement income in later life or assets to pass on to their children.’
Duncan Smith’s comments echo those of former Bank of England economist Professor David Miles, who warned last month that government had wrongly blamed landlords for the UK housing crisis and said politicians’ scapegoating of landlords for spiralling house prices was ‘profoundly wrongheaded’.
He had previously branded Osborne’s tax changes as ‘a terrible tax change’ arguing the move would serve only to push up rents and make it even harder for young people to save for a deposit.
In February the government published a summary of impacts which claimed that based on HMRC figures it expected that one in five individual landlords will receive less relief as a result of this measure.
A spokesperson for the Treasury said: ‘We want more people to be able to own their own home, which is why we have reformed stamp duty and other property taxes to help people get on the property ladder.
‘The changes to income tax for landlords level the playing field between landlords and homeowners. And by using the revenue collected from the reforms to stamp duty, we are helping to double the affordable housing budget, to get more first-time buyers into their own homes.’
‘Landlords with the largest incomes – most of whom do not have mortgages – are completely unaffected by the measure’
Dr Rosalind Beck, a landlord in South Wales, has been very vocal in her bid to get the Treasury to drop the taper on tax relief for buy-to-let mortgage interest.
As a landlord, I am very grateful to Iain Duncan Smith for his sensible comments. It is great that, unlike the majority of Tory MPs who have repeated parrot-fashion the nonsensical comments emanating from the Treasury, Mr Duncan Smith is able to think for himself.
Perhaps he can now lobby the Treasury on this matter, as not a lot of sense is to be had from that quarter at the moment.
For example, I received an email only today from the Treasury, alleging that the purpose of the new tax regime for landlords is to ensure ‘that landlords with the largest incomes do not receive the most generous tax treatment’.
Actually, as we all know, landlords with the largest incomes – most of whom do not have mortgages – are completely unaffected by the measure.
It is landlords who have built their businesses, providing essential housing, using the normal buy-to-let mortgage business model, who are the ones affected, as our main cost has been redefined as part of our profit on which we are now taxed – it’s a tax not on actual profit, but on ‘fictitious’ profit.
The Treasury therefore engages in sophistry with these kinds of comments and insults our intelligence.