Labour’s tax hikes have trapped decent landlords

Apparently, being a ‘greedy’ landlord now means hanging on to a rented house you’d prefer to sell because you’re worried about your tenants.

This is one of those funny details that gets left out whenever politicians talk about squeezing another few quid out of us.

A landlord friend of mine said something this week that made me sit up and think.

He owns three properties, has great tenants, though that wasn’t always the case, and is slowly coming to an alarming conclusion.

He said the returns just don’t justify the hassle or the risk anymore.

Yet he can’t bring himself to put them on the market and he doesn’t want to face the tenants should he decide to do so.

One reason for that is that he knows his tenants will have a nightmare finding somewhere else.

To me, this is a proper trap when staying in the game is getting harder to afford, yet cashing out feels like turfing out decent people who haven’t done anything wrong.

I’m willing to bet plenty of Property118 readers know this feeling only too well.

When the taxman takes more than you make

Then, this week saw the Intermediary Mortgage Lenders Association (IMLA) dropping some numbers that should wipe the smiles off smug ministers’ faces.

Take their example: a landlord on a £100,000 salary with a £250,000 property and a £150,000 mortgage.

Before tax, the annual profit on the rent is £4,365.

But once the Budget’s new income tax rate kicks in, IMLA reckons the effective tax rate hits roughly 124%.

If you’ve just frowned, you are right to do.

Labour thinks it’s acceptable that landlords pay more in tax than the actual profit.

I’m sure there are loads of landlords who have been stuck in this ridiculous hole for a while now.

Paying for the privilege

Run IMLA’s rounded figure and the tax bill on that house comes to around £5,413.

That leaves the landlord having to find roughly £1,048 from somewhere else just to plug the gap.

Let’s call it what it is: subsidising your tenant’s rent out of your own pocket.

To be fair, that specific scenario involves losing the personal tax allowance.

Not every landlord gets hit at that exact rate, and pretending we all do just weakens our case.

Even so, IMLA calculates that a higher-rate taxpayer sitting below that threshold still faces an effective rate of about 74%.

Forget the worst-case scenario for a second and ask yourself a basic question: what’s actually left for the person putting up the capital, shouldered with the risk, and doing the legwork?

I appreciate that having a decent day job might mean you can stomach the loss, but it doesn’t make the business model any less broken.

Great tenants make leaving harder

Usually, someone pipes up and says, “Just stick it all in a limited company.”

If only it were that simple since restructuring drags in capital gains, refinancing headaches and hefty accountancy fees.

As Property118 regularly points out, incorporation is far from a silver bullet and doesn’t suit every landlord.

Selling up brings its own bill of costs and stress, too.

And through all of this, the tenant still needs a roof over their head.

You build real relationships over the years; that’s one that matters to both sides.

Worse still, IMLA’s numbers show that putting the rent up can actually leave everyone worse off.

The tenant takes a hit to their monthly budget, while the landlord barely sees a penny of it once extra costs and the taxman take their cut.

Bills to pay

A tiny annual surplus won’t save you either because one broken boiler or a leaky roof wipes it out in an afternoon.

And that’s before you’ve even factored in a penny for your own time.

Nobody is asking for guaranteed profits, we all understand that every investment carries risk.

Ministers need to grasp the difference between taking a commercial gamble and having the goalposts moved every six months after your cash is already locked in.

The government also needs to stop treating a landlord’s decision to stick around as proof that the system works.

Some stay because selling is too expensive.

Others are just crossing their fingers and hoping the numbers eventually make sense again.

And some, like my mate, stay put because they genuinely care about their tenants.

That last bunch deserves far better than having their decency mistaken for an endless pot of free money.

Good tenants shouldn’t have to rely on their landlord’s willingness to absorb another financial kicking, and responsible landlords shouldn’t be forced to choose between their own bank balance and keeping a good tenancy alive.

A landlord’s conscience is not a housing policy. Shame on Labour for acting as if it should be.

Until next time,

The Landlord Crusader