Left-wing think tank claims landlords should face same tax rates as tenants

Ahead of the Budget, a left-leaning think tank claims “landlords should face the same tax rates as tenants,” calling for changes to Section 24.

In a report, the Resolution Foundation urged Chancellor Rachel Reeves “to level the playing field” with a 2p cut in National Insurance (NI) matched by a 2p rise in income tax, which the think tank estimates could raise £6 billion.

The report comes amid rumours circulating in the media that landlords could be required to pay National Insurance on rental income.

There is no obvious reason why landlords should face lower tax rates than their tenants

The think tank claims, “there is no reason why landlords should face lower tax rates,” and demands a two-point increase in mortgage tax relief.

Section 24 was introduced in the Finance Act 2015 by then-Chancellor George Osborne, removing a landlord’s ability to offset mortgage interest from rental income before calculating tax liability, while allowing only a 20% basic rate deduction.

The report says: “Rental income, taxable savings income and some other minor forms of capital income – which do not attract NI – would face a 2 per cent tax rate rise. Rental income is the most significant element here, but there is no obvious reason why landlords should face lower tax rates than their tenants.

“The main expected economic impact of this particular change (which would also include the mortgage tax relief rate rising by 2 points), would be slightly lower house prices and slightly higher home ownership, with any impact on rents being small.”

As previously reported on Property118, many landlords, including Mick Roberts, one of Nottingham’s largest landlords housing benefit tenants, argue that Section 24, rather than landlords, is responsible for rising rents.

In footnote references, the think tank admits that lower post-tax profits may lead some landlords to sell, but claims, “they can primarily only ultimately sell to tenants, meaning offsetting demand and supply effects within the private rented sector. The ongoing freeze of Local Housing Allowances is a far more relevant consideration for low-income tenants than small changes in landlord taxation.”

Chancellor should do all she can to avoid loading further pain onto workers’ pay packets

The references also claim only unincorporated rental income would be affected “and this would encourage incorporation, but this would be counteracted by our proposal to raise the basic rate of dividend taxation.”

The think tank demands the Chancellor extend employer NI to Limited Liability Partnerships and raise taxes on dividends, where the basic rate is 8.75%, which they claim could raise another £2.5 billion.

Adam Corlett, principal economist at the Resolution Foundation, said: “Policy U-turns, higher borrowing costs and lower productivity growth mean that the Chancellor will need to act to avoid borrowing costs rising even further this autumn. Significant tax rises will be needed for the Chancellor to send a clear signal that the UK’s public finances are under control.

“Any tax rises are likely to be painful but given the fallout from the recent employer NI rise, the Chancellor should do all she can to avoid loading further pain onto workers’ pay packets.

“She can do this by switching our tax base away from employee National Insurance and onto Income Tax, which is paid by a far broader group in society. This should form part of wider efforts to level the playing field on tax, such as ensuring that lawyers and landlords face the same tax rates as their clients and tenants.

“These sensible reforms would raise revenue while doing the least possible harm to workers and the wider economy. And by acting decisively, the Chancellor can turn her full attention back onto securing stronger economic growth.”

Elsewhere, the think tank also calls for applying a carbon charge to long-haul flights and shipping, and reforming Vehicle Excise Duty to account for the road damage, noise and air pollution caused by heavier vehicles.

The full report can be read by clicking here.