10 Tax Reforms Landlords Should Push for in the 2024/25 Budget

Landlords facing mounting tax burdens should consider pushing for specific tax reforms that address the most pressing issues in the current system. With the 2024/25 Budget on the horizon, here are some key tax reforms that landlords should advocate for:

1. Restore Full Mortgage Interest Relief

• Problem: The phased removal of mortgage interest relief under Section 24 has resulted in landlords being taxed on gross rental income, rather than on profits. This significantly reduces the profitability of letting properties and has driven many small landlords out of the market.
• Solution: Restoring full mortgage interest relief would allow landlords to deduct all mortgage interest costs from their rental income before calculating their tax liability. This would help keep smaller landlords in the market, improve profitability, and potentially reduce rent hikes for tenants.

2. Reform the 3% Stamp Duty Surcharge on Additional Properties

• Problem: The 3% surcharge on Stamp Duty Land Tax (SDLT) for additional properties disproportionately affects small landlords and discourages investment in rental properties, reducing housing supply.
• Solution: Remove or reduce the 3% surcharge for landlords who are providing long-term rental housing, or introduce a sliding scale that reduces the surcharge based on the number of years a landlord has held a property or the scale of their rental business.

3. Reduce Capital Gains Tax (CGT) on Property Sales

• Problem: Landlords currently face Capital Gains Tax (CGT) at a rate of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers on the sale of residential properties. This is still higher than the 10% or 20% rates individuals pay on other assets, such as shares or business assets. This disparity discourages landlords from selling and reinvesting in new properties or improving housing stock.
• Solution: Introduce a lower CGT rate for landlords selling residential properties, especially for those reinvesting in new properties or improving existing properties. This would incentivise landlords to reinvest in the market, upgrade housing stock, and release properties for sale when appropriate.

4. Allow Rollover Relief for Property Investors

• Problem: Unlike other businesses that can defer CGT when reinvesting in new assets via Rollover Relief, landlords must pay CGT immediately upon selling a rental property, even if they are reinvesting in another property. This discourages reinvestment and property upgrades.
• Solution: Introduce Rollover Relief for property investors, allowing landlords to defer CGT if they sell a property and reinvest the proceeds in new properties. This would encourage reinvestment in the private rental sector and stimulate housing improvements.

5. Reinstate a Meaningful Dividend Allowance

• Problem: The dividend allowance has been cut to £500, which significantly increases tax liabilities for landlords who have incorporated their portfolios into Limited Companies. This particularly impacts smaller landlords who rely on dividend income.
• Solution: Reinstate a more meaningful dividend allowance, ideally back to the original £5,000. This would give incorporated landlords more breathing room to manage their tax bills and reinvest in their portfolios.

6. Equalise Dividend Tax Rates for Passive Income

• Problem: Landlords pay dividend tax at the same rates as active business income (8.75% at the basic rate, 33.75% at the higher rate, and 39.35% at the additional rate), despite rental income being classified as passive and not benefiting from National Insurance Contribution (NIC) exemptions. This creates an imbalance where landlords pay higher taxes without gaining the advantages of active businesses.
• Solution: Introduce lower dividend tax rates for passive rental income, recognising that landlords don’t benefit from NIC exemptions but are still hit with high dividend taxes. This would provide a more equitable tax treatment for landlords who do not receive the same advantages as trading businesses.

7. Exempt Landlords from VAT or Allow VAT Reclaim

• Problem: Landlords pay 20% VAT on services such as property maintenance, management fees, and professional services, but unlike Build to Rent operators or trading businesses, they cannot reclaim this VAT, which eats into profits.
• Solution: Either allow landlords to reclaim VAT on necessary expenses, or reduce VAT on services related to residential property management, levelling the playing field with larger corporate operators.

8. Business Property Relief (BPR) for Landlords

• Problem: When landlords pass on their portfolios to heirs, the properties are subject to Inheritance Tax (IHT) at a rate of 40%, unlike trading businesses, which can qualify for 100% BPR, allowing them to pass on assets without IHT.
• Solution: Extend Business Property Relief (BPR) to landlords who are actively involved in property management, allowing them to pass on rental properties without the burden of IHT, just like other businesses.

9. Create Incentives for Long-Term Landlords

• Problem: Short-term investors who flip properties for a quick profit often distort the market, while long-term landlords providing stable housing are penalised by tax policies such as the 3% SDLT surcharge and higher CGT.
• Solution: Introduce tax incentives or reliefs specifically for long-term landlords, such as reducing SDLT and CGT for those who hold properties for more than 5 or 10 years, to encourage long-term property investment and stable rental options.

10. Simplify Landlord Tax Rules

• Problem: The complexity of landlord tax rules—ranging from Section 24, SDLT surcharges, and the need for incorporation to manage tax liabilities—makes the tax landscape difficult to navigate, especially for smaller landlords. This leads to landlords selling off properties to avoid rising costs.
• Solution: Simplify the tax rules for landlords by reducing the need for complex structures and offering clearer, fairer guidance on deductions, allowances, and reliefs. This would help retain smaller landlords in the market and ensure they can operate profitably.

Time for Action

As the 2024/25 Budget approaches, landlords must push for the tax reforms that will allow them to survive and thrive in an increasingly difficult market. From restoring mortgage interest relief to equalising dividend tax rates and creating incentives for long-term landlords, these changes are crucial to a fairer tax system and a healthier private rental sector. Together, we can make a difference.

Support Property118: Fighting for Fairer Tax Treatment

At Property118, we are campaigning for fairer tax treatment for landlords to ensure the survival of the private rental sector. These reforms, from restoring mortgage interest relief to reducing dividend tax and CGT rates, are essential to ensure that smaller landlords can stay in the market and continue providing much-needed housing.

We can’t do this without your help. Your donations will allow us to continue our fight for tax reform and keep small landlords at the heart of the UK rental market.

Every donation counts. Use the form below to help us fight for a fairer tax system for landlords across the UK.

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