Ahead of the Autumn Statement next week, industry experts are calling upon the government for a full tax review. What else do landlords need from next week’s announcement besides tax reductions?
Next Wednesday, Chancellor Jeremy Hunt will hold the Autumn Statement and set out the government’s tax and spending plans. The statement will also give an update on Hunt’s economic strategy and introduce any new changes to policy.
Hunt is under considerable pressure from his own Party to introduce tax cuts. With a looming general election and Labour showing a strong lead in opinion polls, the Autumn Statement could give the Conservatives a reprieve they so desperately need with a boost in confidence from the public.
This year, there’s been a lot of talk about legislation changes for the private rental sector (PRS), including the Renter’s Reform Bill and the abolishment of Section 21, but very little clarity. Consequently, many landlords feel disenfranchised and demonised by the government; so, what does the PRS need from next week’s Autumn Statement?
An urgent review of tax changes in the sector
The most highly-anticipated announcements from the Autumn Statement will all be around tax reductions. While Jeremy Hunt had suggested no tax cuts would be made until the Spring, improved public finances have allowed him more fiscal headroom than expected.
Landlords need an urgent review of the Stamp Duty Land Tax (SDLT) surcharge and Mortgage Interest Relief (MIR) removal. Brought in by former Chancellor George Osborne to reduce private landlord investment and “free up” properties for first-time buyers, there are now insufficient numbers of PRS homes to meet demand.
The Levelling Up, Housing and Communities Select Committee backs the NRLA’s campaign on the urgent need to review these taxes, calling upon the government to “make it more financially attractive to smaller landlords”.
The NRLA is also calling for Capital Gains Tax relief to be available for when a landlord sells a property to a sitting tenant or first-time buyer, and then invests in a new property to let. Many landlords will also be looking to see cuts to Inheritance Tax, currently at 40% for estates worth more than £325,000.
Reverse the freeze on Local Housing Allowance (LHA)
The freeze on LHA has meant that private tenants have been receiving benefits based on rents charged in 2019. However, actual rents have increased by 10% since then. The government's data reveals that 61% of privately rented households claiming housing benefits in England and Wales face a shortfall between their benefits and monthly rent.
As such, the freeze on LHA puts low-income and vulnerable tenants at a disadvantage. By bringing LHA rates in line with current market rents, many more tenants would be able to keep up with their monthly rental payments, and therefore, fewer landlords would face void periods. This would also give landlords more confidence in letting their properties out to the lower-income tenants who rely on the PRS for safe and affordable housing.
Budget for housing
Some other vital areas that landlords will be looking at will be around the wider budget for housing. Jeremy Hunt is expected to announce a further four investment zones, following the five announced in August. Similarly, many eagerly await to hear whether the government will budge on its policy to only build on brownfield sites moving forward. With Michael Gove’s plans to build one million new homes by the end of this government, there are doubts that building on greenfield alone will be insufficient.
Court waiting times
One of the most contentious issues announced in the Renters’ Reform Bill is the plan to abolish Section 21 ‘no fault’ evictions. With these plans on hold until the court system has been reformed, landlords eagerly await further details on what these changes will include.
Currently, it takes an average of six months for landlords to regain possession of their property following a legitimate claim. As a result, landlords lack confidence in the courts, and many are concerned about the security of their investments without Section 21 in place.
The NRLA is calling on the government to set clear and solid targets for processing times for possession claims before abolishing Section 21. At a minimum, the NRLA suggests the courts need to meet the legal guideline of eight to twelve weeks to process all claims.
Increase to income tax thresholds
From a wider economic perspective, one significant tax change that many hope will be announced next week is an increase to income tax thresholds. Having not increased since April 2021, current plans mean they remain frozen until 2028. However, with salary inflation rising, think tank Resolution Foundation found that the 40% threshold should already be at £55,340 compared to its current level of £50,270.
For landlords near or just above the higher rate income tax minimum threshold, this 10.1% increase would be significant. For those landlords, incorporating or selling investment property into a Limited Company can have considerable tax benefits, but processing existing assets is expensive. A higher threshold would delay the point at which many landlords have to switch and reduce the tax bills for those in the 40% band who still invest in their personal name.
The NRLA, who have submitted many of the issues above as part of their recommendations for the Autumn Statement, commented: “Despite the importance of a thriving rental market, the Government's efforts to reform the sector have been fragmented and have fallen short in acknowledging its crucial role in housing a diverse range of tenants.
“Our submission ahead of the Autumn Statement includes fair, workable and practical proposals that can make a real difference to people’s lives, giving landlords confidence to remain in the sector at a time of unprecedented crisis, while offering a helping hand to renters in need of a place to live.”
15th November 2023