Landlords are not an easy target for Rachel Reeves’ tax rises

Next Wednesday Rachel Reeves will present her spending review which is widely expected to contain an array of tax rises to fund current and future commitments. The embattled Chancellor is facing enormous pressure from her backbenchers and from the electorate to raise money to fund a wide number of policies and promises.

But there are fewer options than she would like and her self-imposed restrictions on which taxes can be raised means that she is having to seek less obvious sources of income. As a result, she is thought to be considering targeting landlords with a range of possible taxes. The Chancellor believes that landlords and property investors are not “working people” and are, therefore, able to be taxed without breaking any manifesto pledges.

Her options include forcing landlords to pay National Insurance (NI) on their rental income, introducing a separate tax band for rental income, and levying VAT on residential property lettings. There are, of course, problems with all of these options including implementation issues and the fact that imposing more costs on landlords could have the effect of pushing them out of the market. Fewer homes would mean higher rents and would do nothing to address the current housing shortages.

Any additional costs imposed would, obviously, have to be passed on to the tenants so while this may seem like a winning policy in terms of the optics of targeting landlords the reality is that those people who actually depend on the private rented sector (PRS) to provide their home would be the ones paying the higher taxes.

This default policy of always assuming that landlords and property investors are easy targets for raising finance for the government is nonsensical. The last decade has already seen them subject to a series of ever more punishing tax and regulatory changes and now the government may be coming back for more.

The problem the government has is that landlords and property investors can simply exit the market. They may have projections which show that by adding VAT or introducing a landlord income tax this will produce a quantifiable annual levy based on current incomes, but this does not allow for behavioural change as a result of higher taxes.

Many landlords may simply leave the sector, restructure their businesses, or put up prices for tenants to cover the extra taxation which means the projected gains will not materialise. The outcome of this kind of taxation would be that it would not help those needing a home and would exacerbate the current housing crisis.

At a time when demand is unprecedented, when tenants are facing delays in finding appropriate homes, and when property investment is being put on hold due to uncertainty over future returns this is not the time to make the market more difficult for landlords.

Instead, the government should be working with the sector to make it more attractive to invest, to grow the market, and to improve investment conditions for landlords and property investors. By doing this the private rented sector would grow, landlords would invest, and tenants would benefit. This would be a win-win situation for all and would immediately start to address the current housing emergency.