In a compelling argument presented in both The Times and on the Institute of Fiscal Studies (IFS) website, Paul Johnson, a director at the IFS and a visiting economics professor at University College London, has called for the abolition of stamp duty for private landlords. Johnson, recognized as an independent analyst of economic policy and a figure often consulted by news organizations, emphasizes the adverse impact of current tax structures on the housing market.
Johnson contends that prospective landlords face a double burden with additional stamp duty costs and higher taxes on various aspects of their investments compared to owner-occupiers. Notably, landlords not only pay tax on rental income but also contend with limited relief on mortgage payments. Higher-rate taxpayers, whose rental income barely offsets mortgage interest payments, still face a 20 percent tax on their rental income.
The economist highlights that landlords are further subjected to capital gains tax upon property sale, even on inflationary gains. Despite excluding stamp duty, Johnson argues that the effective tax rate on the real return for a higher-rate taxpayer investing in a property to let, holding a 50 percent mortgage, and selling after a decade is approximately 76 percent. This figure increases to 86 percent for additional (45 percent) rate taxpayers and can surpass 100 percent for landlords with larger mortgages.
Johnson underlines the impact of these taxation policies on tenants, stating, “It is tenants, actual and potential, who suffer. The more harshly that landlords are taxed, the higher rents will be.”
Connecting recent rent hikes to increased tax liabilities for private landlords, Johnson acknowledges the unpopularity of reducing or scrapping these taxes in the upcoming Spring Budget, attributing it to the perception that private landlords are not widely seen as deserving economic benefits. However, he asserts that such a move would ultimately boost rental supply and lead to reduced rents.
Moreover, Johnson draws attention to the onerous nature of stamp duty, or its equivalent, for owner-occupiers, describing it as “eye-watering” in certain parts of the UK. As discussions surrounding tax reforms and the Spring Budget intensify, Johnson’s proposal raises critical questions about the broader implications of current taxation policies on the housing market and tenants’ welfare.