0:02 AM, 25th October 2024, About a month ago 1
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Let’s face it—being a landlord in the UK is tougher than ever. Tax changes, regulations, and red tape are squeezing landlords out of the market, and if that wasn’t enough, landlords are also being denied the same tax reliefs that other businesses take for granted. Two of the most frustrating examples? Business Asset Disposal Relief (BADR) and Business Property Relief (BPR). And let’s not forget the lack of Rollover Relief, which makes it even harder for landlords to reinvest and grow their property portfolios.
Isn’t it about time the government levelled the playing field? Let’s dive into why landlords are getting the short end of the stick when it comes to tax relief.
Imagine this: You’ve spent years building up a rental property portfolio. You’ve dealt with tenant issues, maintained your properties, and contributed to the housing market. You’re effectively running a business, right? Well, HMRC doesn’t seem to think so.
While other businesses qualify for Business Asset Disposal Relief (BADR), which reduces Capital Gains Tax (CGT) to just 10%, landlords get left in the cold. Instead, landlords are slapped with 18% CGT (for basic-rate taxpayers) or 24% CGT (for higher-rate taxpayers) on property sales. Meanwhile, the guy selling his coffee shop next door? He only pays 10%.
But wait, it gets worse. Landlords also don’t qualify for Business Property Relief (BPR), which means that when you pass your property portfolio onto your heirs, they’re hit with Inheritance Tax (IHT) at a whopping 40%. If you were running almost any other type of business, your heirs could benefit from up to 100% relief under BPR.
Why? Because HMRC says that property letting isn’t a trading business. That’s right—even if you’re managing properties full-time, dealing with endless tenant issues, fixing broken boilers at midnight, and paying for repairs, you’re not running a “real” business. Tell that to any landlord and watch the disbelief on their face.
It’s not just BADR and BPR that landlords miss out on. One of the most damaging exclusions is the lack of Rollover Relief. If you own a business and you sell an asset—say, a shop or some equipment—and reinvest that money in another asset, you can defer Capital Gains Tax with Rollover Relief.
But not if you’re a landlord. Let’s say you sell one property and reinvest the proceeds into another. Guess what? You’ll be forced to pay Capital Gains Tax upfront, even though you’re reinvesting in the property market. It’s a cash grab by the government that makes it harder for landlords to grow their portfolios and, ultimately, reduces the availability of rental properties.
This tax policy doesn’t just hit landlords—it hurts tenants too. When landlords are discouraged from reinvesting, the supply of rental homes shrinks. And when that happens? Rents go up, and tenants end up paying the price.
Let’s take Sarah, a landlord with five rental properties worth £2 million in total. She’s been managing her properties for years, dealing with everything from finding tenants to arranging repairs. Now she’s looking to sell two of the properties and reinvest in new, more energy-efficient homes.
Under normal business rules, Sarah could sell her assets and reinvest in new properties, deferring her Capital Gains Tax through Rollover Relief. But because she’s a landlord, she’ll have to pay 28% CGT on any gains as soon as she sells, with no option to defer.
And that’s not all. If Sarah could claim Business Asset Disposal Relief (BADR), she’d only be paying 10% CGT on her profits. But nope—landlords don’t qualify. So, instead of growing her business, Sarah is hit with a tax bill that could wipe out her reinvestment plans.
It’s the same story when it comes to passing on properties. When Sarah eventually wants to pass her portfolio to her children, they’ll be hit with a 40% Inheritance Tax. If Sarah ran a trading business, her heirs would benefit from 100% Business Property Relief, but as a landlord, Sarah’s family gets nothing but a massive tax bill.
If you think this tax injustice only affects landlords, think again. When landlords are penalised with higher taxes, it discourages them from investing in new properties, improving their existing homes, or expanding their portfolios. And when landlords are forced out of the market, what happens? Rents go up, supply goes down, and tenants have fewer options.
It’s a lose-lose situation. Small landlords—who often provide more personalised service and stable, long-term tenancies—are disappearing, and corporate landlords are swooping in. With higher rents and less flexibility, tenants are getting squeezed, all because the tax system is making it harder for landlords to thrive.
It’s time to face facts: The current tax system is rigged against landlords. BADR, BPR, and Rollover Relief are just three of the ways that landlords are denied the same tax breaks as other businesses, even though they’re providing a vital service by offering housing.
If landlords were given the same tax reliefs as other businesses, they’d be able to reinvest, grow their portfolios, and keep rents more affordable for tenants. Instead, they’re being taxed out of existence, leaving the rental market to be dominated by corporate giants with less personal involvement and higher profit margins.
The fact that landlords are denied access to crucial tax reliefs like BADR, BPR, and Rollover Relief is unjust. These tax breaks are vital for businesses to reinvest and grow, and landlords should be no exception. It’s time to change the rules and level the playing field. Let’s make sure that landlords get the tax breaks they deserve, so they can keep providing housing and tenants can benefit from better, more affordable homes.
At Property118, we’re fighting to get landlords the fair tax treatment they deserve. Extending BADR, BPR, and Rollover Relief to landlords would be a game changer, helping to keep the private rental market competitive, affordable, and tenant-friendly.
But we can’t do it alone. We need your help to push for these changes. If you believe in fairness for landlords and want to see the private rental sector thrive, please consider supporting us.
Every donation counts. Use the form below to help us fight for a fairer tax system and a healthier rental market for everyone.
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Sign Up10:02 AM, 27th October 2024, About 4 weeks ago
Thanks Mark.
There are two more elements that consider here in terns of misallocation of assets.
I have a property that is too far away from me to effectively manage. I want to sell it and buy one closer.
However the tax costs of selling and repurchasing lock me into that property. I use far more resources travelling to and from that property and using agents that would otherwise be unnecessary. This reduces productivity and increases costs for everyone. It also means my tenants get a slower and poorer service.
The other is the costs are too onerous to bear from an investment perspective, so I employ people associated with P118 to try and legally avoid the consequences. This is money that would otherwise be invested in better housing for all.