Amid the gloom of proposals for landlord registration and licensing, longer tenancies, rent control and most recently legislation to stop retaliatory eviction – with all the usual media images of feckless landlords and tenants surrounded by mould – came one ray of sunshine this Autumn. The Resolution Foundation and Chartered Institute of Housing Report ‘More Than A Roof’ makes some refreshing proposals. Initially it recommends a national framework for landlord accreditation, nothing revolutionary in that. A fraction of the UK’s 1.4 million landlords are accredited. In London, it is estimated that there are 300,000 landlords yet less than 15,000 or so are accredited through the various schemes which include the National Landlords Association (NLA) and London Landlord Accreditation schemes. The Mayor of London’s Rental Standard aims to increase this to an ambitious target of 100,000.
Accreditation generally involves satisfactory attendance and completion of a one day course. It is renewed annually subject to ongoing professional development. Some critics argue that attendance at a course does not ensure that landlords will adhere to standards, but any infringements should be reported to the accrediting body, resulting in possible de-accreditation. Some local authorities offer discounts on licensing fees to accredited landlords.
This national framework would form the basis of some far more interesting proposals in the report: three tax incentives for accredited landlords. Firstly, a more generous allowance for deductible expenses, where landlords deduct the cost of repairs from their profits for income tax purposes, compared to unaccredited landlords. Secondly, any improvement to the property that brings it up to an accredited standard would count as a repair rather than an improvement. Currently improvements to a rented property can only be claimed against tax when the property is sold, often in several years time. These proposals would allow accredited landlords to claim improvements against tax in the current tax year. This is normally only allowable for repairs not improvements and that would continue to be the case for unaccredited landlords.
The third tax incentive would be capital gains tax rollover relief. Currently if a landlord sells a property, she pays capital gains tax on the profit. Rollover relief would allow her to reinvest the profit without paying capital gains tax by immediately buying another property . This is in reality a deferral of capital gains tax because it will ultimately have to be paid if the property is sold in the landlord’s lifetime.
Would these tax incentives be seen by the general public as an extravagant gift for landlords? I don’t think they would, because they are helping landlords develop their business and improve their properties so that they can provide more and better housing. The business of a landlord has always been taxed on an unearned income basis under the land and property section of the HMRC tax form, so profits cannot be reinvested without incurring tax. These tax incentives would be a welcome acknowledgement that accredited landlords are running businesses.
I attended the Association of Housing Advice Services conference this week in central London and took part in a robust debate on a number of issues, particularly focusing on the supply of housing for people living on low incomes. There were two more suggestions for incentive based policies to encourage landlords to stay with this sector, which I really liked.
NLA research revealed in January 2014 that the number of landlords prepared to let to tenants on housing benefit had fallen from 46% to 22%. 7 out of 10 landlords said they were managing arrears which had averaged over £3,000 in the past 12 months. Local Housing Allowance is paid directly to tenants and many landlords have vacated the sector because they are concerned that tenants will not pass this government rent allowance on to them. Local authorities have had discretion to make direct payments to landlords as an incentive to accept vulnerable tenants. Rhona Brown, Senior Policy Officer at The Greater London Authority said the Mayor would like to see direct payments be offered to accredited landlords as an incentive to encourage them to let to tenants on benefits.
Local authorities and social housing providers often provide 3 or 5 year leases with guaranteed rents to landlords wishing to let to this cohort. But the rent is often aligned to LHA rates which can be lower than the market rent. Neil Wightman, Director of Housing Needs at Lambeth suggested landlords who let to this cohort for a certain number – maybe 10 years – become exempt from capital gains tax.
None of the political parties have taken up proposals for tax incentives and it looks unlikely that we will see these in next year’s election manifestos. Sadly there is a fashion for sanction based schemes such as licensing or article 4 directions, often tinged with anti landlord sentiment. I am really enthusiastic about incentive based schemes that encourage the improvement of standards in both housing stock and management and I hope we can persuade politicians of the merits of this approach. We know taxation can be a powerful catalyst for behavioural change.
