If any buy-to-let landlords were unaware of the quotation by Benjamin Franklin that the only certainties in life were “death and taxes”, to use that much-quoted Scotticism – they ken noo!
While multinationals are permitted to pay a risible amount of corporation tax (and, on occasion, no tax at all) on their huge surpluses earned in this country, private landlords have been included in the most recent targets of soft touches (others include pensioners reliant on dividend income) by Chancellor Philip Hammond and his predecessor George Osborne.
The previous financial year saw the withdrawal of the annual 10 per cent tax allowance for “wear and tear”, which indirectly encouraged responsible landlords to keep the standards of interiors at an acceptably high level for tenants. In the financial year about to end, the level of tax relief on mortgage interest has fallen from 100 per cent to 75 per cent and is scheduled to drop to zero by 2020/21. True, this will be replaced by 20 per cent tax relief on financial costs for all rental borrowers but this “concession” will in no way make up for the reliefs currently being removed.
The end result will be a sharp reduction (in the case of some landlords to zero) of net rental income after taxation, capital and interest payments and other expenses. As the earlier taxation rules often made a buy-to-let investment viable, a substantial number of landlords will already be considering their options, one of which is to withdraw from the sector altogether.
In Edinburgh and other price hot spots the impressive record of capital appreciation will continue to attract investors but this may not be so in more depressed provincial towns – where, surely, private properties with relatively low rents (and deposits) are needed most.
Now some may see less rental investment as a good thing on the basis that competition from taxpayer-subsidised, buy-to-let landlords has pushed up prices in general and, consequently, increased the cost of owner-occupation as well. However, with so many potential first-time buyers thwarted by high deposits on mortgages, for communities across Scotland a strong and varied rental market is essential.
Another negative aspect of the tax changes is that it discourages entrepreneurship, to which I thought a Conservative government was committed. It is surely no bad thing that there are individuals without inherited wealth who build up a portfolio of three or four flats, which not only turn a profit but service a public need. Now the two sources of income (job and property) will most likely take them into the 40 per cent tax bracket, something not anticipated at the outset.
I suppose we should be thankful that the tax changes do not affect cash buyers or property companies registered for corporation tax – but that seems to suggest that buy-to-let might become more of a rich man’s game.
In contrast to the Westminster-controlled income tax changes, the suggestion by the Scottish Government to up the cost of registering seems small change in comparison.
However, I would question the usefulness of the landlord registration scheme, which seems to have brought no real benefit to the private rented sector (including the interests of responsible tenants). The intention, I believe, was to ensure the suitability of individuals to act as landlords and, by implication, to protect tenants from being victimised.
Yet landlord registration does not address the wider problem of tenants who blatantly refuse to keep up rental payments or who give neighbours grief with their anti-social behaviour – and whose eviction involves a lengthy and expensive process.
So my provisional contribution to the consultation process is this: let’s make the system a bit more balanced and the majority of responsible landlords who register (the rogues, of course, simply ignore it) might feel their registration fees are worthwhile.
David Alexander is MD of DJ Alexander