Member News
By Baroness Gardner of Parkes - 25th July 2010
Baroness Gardner of Parkes writes for ePolitix.com ahead of her question on the letting of residential properties.
"Whether they will encourage the letting of residential properties by classifying them as businesses in the same way as holiday lettings."
I have a declared "Land & Property" interest in the Register of Lord’s Interests
There is such a great need for more housing in this country, that I believe every encouragement should be given to providers of residential accommodation to help reduce the shortage of suitable homes for rent.
Many small private landlords have entered the lettings market when they inherited or bought a property in addition to their own home. The need is for long term residential accommodation. Stimulating these owners to invest further would help to bring back into use properties that are in need of restoration, and at the same time provide jobs in the construction industry. It would increase the supply of habitable dwellings.
I am sure that "holiday lettings" must be helping to produce national income and meet the demand of tourists and holiday makers but they are not the answer to the shortage of homes. Yet they have the benefit of a business classification which, in Tax terms, is much more favourable than the treatment of private landlords providing long term homes.
Under current rules, owners of furnished holiday lettings can offset any trading losses from their second home against their other income. They also have access to a number of capital gains tax reliefs such as rollover relief and entrepreneurs' relief.
A property must be available for commercial letting as holiday accommodation for a minimum of 140 days a year and let for at least 70 days. Any property let for more than 31 days to the same person is not a "holiday let" during that period.
Well known accountants Grant Thornton, pointed out this June that owners of furnished holiday lettings could also take advantage of the increase in the limit of lifetime gains for entrepreneurs' relief, up from £2m to £5m. "We could see people that previously looked at buy-to-let but not necessarily furnished holiday lets tempted to go that way instead and take advantage of the relief."
In the case of holiday lettings, Capital Gains Tax can be rolled over when one property is sold and another bought to continue the "business." In this way, there is encouragement to expand. Eventually The Treasury gets the tax on any Capital Gains - when the enlarged business is sold - so it is only deferring tax revenue, not cancelling it.
The Rug Review in 2008 recommended that residential lettings should be classified as a business. This would encourage Landlords to re-invest and also refurbish and improve properties. Such a change would be of particular benefit for older housing in most need of renovation as 40% of the Private Residential Sector is pre 1919. It could also stimulate investment in energy efficiency measures.
I consider it wrong that such a perverse incentive to providing long term residential accommodation should exist and I am hoping that my question will cause the government to make the necessary changes to encourage private landlords to increase the supply of homes to rent and also return unused properties to a habitable condition
Article Comments
The Residential Landlords Association welcomes Baroness Gardner's views. We have long argued that with 40 per cent of the private rented sector built before 1919, these properties cannot afford to be allowed to decline. Better tax allowances for improvements, and improved energy efficiency are essential - but roll-over tax relief on the sale of one property for investment in another will help to provide economical, affordable homes to rent.
Alan Ward
27th Jul 2010 at 10:29 am
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