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Tax relief on landlords' finance costs: s24 of Finance (No.2) Act 2015

Published Friday, March 15, 2019

This note looks at the way that landlords have been able to offset their finance costs against tax, the changes made to these rules by s24 of Finance (No.2) Act 2015, and the debate there has been over their likely impact. It looks briefly at the introduction from April 2016 of higher rates of stamp duty on the purchase of additional residential properties, as the Government has explicitly linked these two measures as being targeted to help first time buyers.

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In the Summer 2015 Budget the then Chancellor George Osborne announced proposals to restrict the tax relief that buy to let landlords are entitled to claim on their mortgage interest, to be phased in from April 2017. In his Budget speech Mr Osborne argued that measure would “create a more level playing field between those buying a home to let and those buying a home to live in” although he took the view that the way that this change was being implemented was “proportionate and gradual … because I know that many hard-working people who have saved and invested in property depend on the rental income they get.”[1]

Provision for this measure was included in the Finance Bill introduced after the Budget – specifically, clause 24 of the Bill. It now forms section 24 of the Finance (No2) Act 2015.[2]  At the time of the Spring 2017 Budget it was estimated this measure would raise £225m in 2018/19 rising to £940m by 2021/22. [3]  

Many stakeholders raised concerns at the time that this change might have a significant impact on the supply of rental property, or the level of rents, although the Government did not share these concerns – and since this measure was introduced there has not been any indication that Ministers have any plans to revisit this issue.[4]  

In answer to a PQ on the impact of this reform in July 2018 Financial Secretary Mel Stride said, “it is too early to properly assess the wider impacts of the restrictions to finance cost relief for landlords introduced in April 2017 as these are still being phased in. But given that only a small proportion of the housing market is affected by these changes, the government does not expect them to have a large impact on either house prices or rent levels.”[5] In answer to a second PQ in November 2018, Treasury Minister John Glen said, “The Government estimates that only 1 in 5 landlords would pay more tax as a result of the restrictions to landlords’ finance cost relief, once it is fully implemented … The most recent Office for National Statistics (ONS) index of private housing rental prices shows that rental prices increased by 0.9% in the 12 months to September 2018. A year ago (the 12 months to September 2017) the annual rate of growth was 1.6%.”[6]

Notes : 

[1]     HC Deb 8 July 2015 c330. See also, HM Revenue & Customs, Restricting finance cost relief for individual landlords – tax information & impact note, 8 July 2015

[2]     This provision was debated and agreed, with certain technical amendments, at the Committee stage of the Bill on 13 October, without a division (Public Bill Committee, Third Sitting, 13 October 2015 cc86-91).

[3]     Spring Budget 2017, HC 1025, March 2017 p30 (Table 2.2 – item bi)

[4]     Ministers have reiterated the Government’s position on this issue in answer to several PQs: for example, PQ44101, 12 September 2016; PQ2006, 4 July 2017

[5]     PQ165446, 23 July 2018

[6]     PQ188265, 12 November 2018

Commons Briefing papers SN06361

Author: Antony Seely

Topic: Taxation

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