PRS tax hikes sees Treasury lose £1.5bn

In addition to adding to the misery of UK landlords as well as reducing the number of available homes for tenants, restrictions in mortgage interest relief have also cost the Treasury £1.5bn in lost revenue, according to new independent analysis commissioned by the NRLA.

Related topics:  Landlords,  Tax,  NRLA
Property | Reporter
24th March 2023
HM Treasury 826
"At a time when renters are struggling to find a place to live, today’s research shows that the Government has shot itself in the foot"

The analysis, conducted by Capital Economics, found that restrictions in mortgage interest relief have contributed to there being 1.2 million fewer properties in the private rented sector in the UK than there otherwise could have been.

The research comes as renters across the country continue to face a shortage of homes to rent. According to Zoopla, compared to the five-year average, demand for rented housing is up 46% whilst supply is down 38%.

The supply crisis faced by renters follows the decision in 2015 by then-Chancellor George Osborne to restrict Mortgage Interest Relief in the private rented sector to the basic rate of income tax.

Capital Economics also finds that between 2010 and 2016 the stock of private rented housing increased by a rate of 3.7% a year. However, between 2017 and 2021, the period in which the mortgage interest changes were implemented, it grew by just 0.4% a year.

The analysis reveals how, if private rented housing stock had continued to grow at a rate of 3.7%, there would have been a total of 6.8 million properties in the private rented sector in 2021 - around 1.2 million more properties than were actually available to rent.

According to Capital Economics’ research, the annual income and corporation tax revenue from these extra rented properties would have boosted Treasury revenue by £1.5 billion.

The NRLA is calling on the Government to undertake a full review of the impact of recent tax rises on the sector. It argues that this must assess the impact of the Mortgage Interest Relief changes on the market. Ministers must also consider the rationale for the change, given the Institute for Fiscal Studies has previously argued it is wrong to suggest landlords have been taxed more favourably than homeowners.

Ben Beadle, Chief Executive of the National Residential Landlords Association, said: “At a time when renters are struggling to find a place to live, today’s research shows that the Government has shot itself in the foot.

“The decision to restrict mortgage interest relief has not only stifled investment in the very homes tenants need, but it has also come at a considerable cost to the Treasury in lost revenue.

“When you consider that the Government’s rationale for the changes has been refuted by the Institute for Fiscal Studies, it is clear that the Chancellor needs to review this misguided tax hike.”

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