Tax reform vital to secure future of private rented sector

Ambitious new plans to boost housing supply by reforming taxes are the backbone of our new proposals for the future of the private rented sector (PRS). 

As the new Prime Minister beds in at Number 10 we have produced a comprehensive 17-page plan detailing a series of initiatives to help landlords and tenants and boost rental supply.  

These include: 

• Changes to the tax system to encourage landlords to invest. 
• Beefed up enforcement to drive out criminal landlords. 
• The restoration of Local Housing Allowance (LHA) rates to at least the 30th percentile. 
• Tax incentives and green loans to support landlords making energy efficiency improvements. 
• Strengthened powers to tackle anti-social behaviour, particularly in HMOs. 

Tax reform

With much talk of the Government rebalancing the tax system by bringing Capital Gains Tax (CGT) rates in line with Income Tax, we have stressed it is essential landlords are incentivised to continue to invest long term. That’s why we are recommending a new deferred annual investment allowance. 

This allowance would be accrued annually, but only realised on the sale of a property, rewarding those offering stable housing, with those investing long-term picking up a higher payment.  

We are also calling for Business Asset Rollover Relief to be extended to residential property. This would allow you to defer paying CGT when you sell a property, as long as you reinvest the proceeds from property sales into new rental homes, again supporting the continued provision of long-term housing. 

Under the rules would still need to pay the tax, but not until you sold the ‘newer’ home. 

Tax breaks for energy efficiency works

With stringent new minimum energy efficiency standards (MEES) coming in by 2030, we are also calling for tax breaks for landlords investing in energy efficiency measures. As part of this we are proposing the Government: 

• Allows specific energy-efficiency improvements to be treated as revenue costs, and therefore deductible against income tax. 
• Publishes a clear, annually updated list of qualifying retrofit measures to provide certainty to investors. 
• Develops a modernised Landlord Energy Saving Allowance (LESA 2.0) to support works such as the installation of double glazing, and low-carbon heating, aligned with the forthcoming MEES regulations. 

We believe that using the tax system to support investment would not only maximise what landlords can spend on energy efficiency works, it will also provide vital support for local trades and supply chains. 

Restoring Local Housing Allowance (LHA) rates

In line with our recent campaigns work we are calling on the Government to restore LHA rates to at least the 30th percentile from the start of the next financial year, with a commitment to maintain this level for the duration of this Parliament. Also a comprehensive assessment of the social and economic benefit of restoring LHA rates to the median rent, should be undertaken, which would cover 50% of rents in a given area. 

HMO Britain?

Issues relating to HMOs have risen up the political agenda in recent months, with Andy Burnham criticising the immigration system for placing vulnerable asylum seekers in ‘poorly managed HMOs’.  

While we understand his comments were focussed on a sub-section of the market, it can be unhelpful when politicians focus on one small part of the PRS to the neglect of the majority. Too often our sector is marginalised and typecast, whereas in reality it is home to a fifth of all households and provides homes for people across all communities. We would never seek to minimise the importance of dealing with issues in HMOs, however we want the Government to look across the board at how we can improve support for landlord and tenant victims of anti-social behaviour in HMOs and speed up access to justice to nip potential issues in the bud. 

Room for improvement

Our CEO Ben Beadle said: “The English Housing Survey shows more than 80% of private renters are satisfied with their homes, and two thirds say they find it easy to afford their rents. That said, we know there is room for improvement.  

“The country is still in desperate need of homes to rent, and if the Government decides to bring CGT rates in line with interest rates it is essential they offer alternative support to landlords to remain in the sector and continue to invest.  

We all agree the country needs a healthy, vibrant private rented sector, and with 1.34 million households on the waiting list for social homes it is more vital than ever. 

“Our document, ‘Next steps for the private rented sector’ lays out clear, achievable proposals that have the potential to make a real difference across the sector to provide affordable rental homes in the places people want to live.” 

The proposals have now been sent to the minsters across government departments, influential think tanks and stakeholders, and importantly to 10 Downing St (the old one in London) prompting useful conversations with our policy team. To read the full document click here.