UK households enjoy £125bn “tax break”!
Landlords are allowed to deduct a wide range of expenses, on top of mortgage interest costs, before they have to pay tax on their rental income. These allowable expenses include the cost of insurance, maintenance and repairs, utility bills, cleaning and gardening, and legal fees. Ordinary homeowners are not entitled to similar privileges.
The idea that “ordinary homeowners” do not enjoy the “privileges” of landlords in the tax system is wrong; in fact the opposite is true. Owner-occupation is slightly favoured over rental, since the imputed rent of the owner-occupier is tax exempt, whereas the actual rent received by landlords is taxable income. In addition, capital gains are taxed for landlords and tax exempt for owner-occupiers (with some minor caveats). That’s just taxation: the long list of direct government subsidies for residential mortgage lending surely further skew the balance of subsidy towards owner-occupation; an NAO report from March 2014 lists (Figure 2) six different schemes since 2006, and then we could move on to bank regulation, and so on.
The ONS estimates owner-occupiers’ imputed rent at £125bn in 2014, so perhaps a more accurate (though still nonsense) headline would be that homeowners receive a “£125bn subsidy” over landlords? I suppose that wouldn’t fit as neatly into the standard Guardian workers vs capitalists zero-sum narrative. I highly recommend Chapter 16 of the Mirrlees Review for a thorough discussion of land and property taxation.
The “Generation Rent” group (who claim to campaign on behalf of renters) seems to be firmly embedded in the long tradition of completely insane British housing market policy, proposing in their manifesto both rent controls and the extension of a weak form of “Right to Buy” to the entire private rental sector. They are a reliable source of silly quotes in any article about the housing market, this time coming up with:
“The tax system also puts landlords at an advantage over potential owner occupiers when competing for the limited supply of houses and it’s those thwarted first-time buyers who end up paying off the mortgage anyway in rents. “We need to stop subsidising property investment and use that money to build more homes instead.”
We need to stop subsidising investment in property… so we can invest more in property? A cunning plan.