Hike in rented housing tax ‘costs Treasury £1.5bn’

An independent analysis shows that tax changes in the private rented sector (PRS) have contributed to the loss of £1.5 billion in Treasury revenue.

The research was commissioned by the National Residential Landlords Association (NRLA) and carried out by Capital Economics and found that restrictions in mortgage interest relief have contributed to there being 1.2 million fewer properties in the UK’s PRS.

The findings come at a time when tenants are facing a shortage of homes to rent across the country.

‘The Government has shot itself in the foot’

The NRLA’s chief executive, Ben Beadle, 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.”

Demand for rented housing is up 46%

According to Zoopla, compared to the five-year average, demand for rented housing is up 46% whilst supply is down 38%.

And the NRLA points to the rented home supply crisis being faced by renters follows a decision taken in 2015 by then-Chancellor George Osborne to restrict Mortgage Interest Relief in the PRS to the basic rate of income tax.

Capital Economics also found 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.

Rented properties would have boosted Treasury revenue by £1.5 billion

And, 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 and Ministers must also consider the rationale for the change – since the Institute for Fiscal Studies has previously argued it is wrong to suggest landlords have been taxed more favourably than homeowners.

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