Renters Reform? What about the tax bill?

There was a long-awaited return to the House of Commons this week when the Renters (Reform) Bill finally rose to the top of the political agenda and received its Third Reading.

What a marathon it has been! This controversial legislation promised the most ‘radical reform of the rented sector in a generation’ and has gobbled up acres of space in the trade press as industry commentators weighed up the potential effects of some of the proposals.

In its original form, some warned that the scrapping of Section 21 (so-called ‘no fault’) evictions – which was a 2019 Conservative manifesto commitment – would decimate the sector.

The plan to make it easier for tenants to keep pets in their properties would cause damage and noise nuisance.

And the proposal to end ASTs in favour of rolling periodic tenancies, would throw the student lettings market into chaos.

Process of scrutiny

But as the Bill has progressed through the various stages of the parliamentary process, a bit of tidying here and a little tinkering there in terms of amendments has smoothed some of the furrowed brows.

It is now ready to be kicked upstairs to the House of Lords so it can go through the entire process of scrutiny all over again.

Will it make it on to the statute books before the next election? Who knows? But while the arguments rage over this clause and that measure, the Private Rented Sector rolls on with rents rising and too many would-be tenants chasing too few homes.

Ironically, almost everyone agrees they want to see more decent homes rented by good, responsible tenants – I say that as a landlord, myself!

The problem is that there aren’t enough homes available.

And this piece of what has been called ‘anti-landlord’ legislation has not done much to help the situation. Some landlords have left the sector and some others are threatening to do so.

And when landlords sell up, the chances are their properties will be bought, not by other landlords but by first time buyers – thereby reducing further the amount of stock available…permanently.

Only last week, flat-share site, Spareroom, published an analysis of the lettings market which said that in Q1 of 2024, rents rose 9% on average in the UK compared to the same period in 2023 (Letting agent Today - 16th April). This is despite the fact that demand has cooled since the heights of last Summer and the pressure on supply has marginally eased.

Surely what needs to happen is that we need more landlords not fewer - either that or we need our landlords to have enough confidence in the market to expand their portfolios and buy more properties to rent.

All this talk about the rights and wrongs of Section 21 evictions, property portals, periodic tenancies and pets in lets is all well and good but the truth is that landlords are running businesses and, like any business, they have to be able to turn a profit or that investment will go elsewhere.

Cost of trading

Higher levels of regulation in terms of health and safety, energy efficiency and tenancy verification all involve bureaucratic burden which all businesses dislike but most commercially-minded organisations accept as part of the cost of trading – provided there’s a profit at the end of the day.

So while the Government may consider it fair and reasonable to intervene on regulatory matters, surely it should consider easing the tax burden on landlords to help them cover some of their costs and stay in business.

Pre-2017, buy to let landlords could deduct all their mortgage interest payments from the rental income earned and claim relief at their personal rate of taxation.

Basic rate taxpayers could claim 20% relief while higher rate tax-payers would be able to claim 40%, or even 45%.

But now, all landlords receive 20% tax relief while also facing significantly higher mortgage costs.

To make matters worse, landlords are now taxed on their full rental income with a 20% tax credit against the mortgage cost.

Is it unreasonable for a landlord to consider all mortgage payments to be a legitimate business cost if that business is providing homes?

Perhaps the Government would have been wiser to reform the fiscal burden (introduced by George Osborne when he was Chancellor) at the same time as the Renters (Reform) Bill.

There should be give and take, after all.