Irish decision fuels hope for UK landlords

The Irish government has promised to restore tax relief for landlords, fuelling hope among campaigners that the UK chancellor might also reverse punitive tax changes for buy-to-let investors that are due to come into force next year.

Earlier this month the Axe The Tenant Tax campaign group, represented by QC Cherie Blair, lost its bid for a judicial review of the UK Government’s decision to cut back tax relief on mortgage interest for private landlords. The relief is due to be gradually scaled back to 20 per cent between 2017 and 2020.

The campaign group argued that the tax changes were unlawful on the basis that the restriction on landlords’ ability to deduct finance costs as a business expense might constitute a grant of state aid to corporate landlords and owners of commercially let holiday homes, and might breach the European Convention on Human Rights. It also claimed landlords would be forced to pass on increased costs to tenants, pushing up rents, and some might lose their home if landlords could no longer afford to maintain their buy-to-let properties. The campaigners vowed to contiinue their fight despite the court’s decision.

Delivering his budget statement to parliament, Irish finance minister Michael Noonan said: “Interest deductibility for residential property landlords was restricted to 75 per cent in 2009 as part of the measures introduced to rescue the public finances. It is an appropriate time to revisit this measure in the context of the housing crisis.

“In light of the incentive I introduced last year to support landlords who let their property to social housing tenants for a minimum period of three years, I am going to restore full interest deductibility for other landlords on a phased basis.”

The relief will rise from 75 per cent to 80 per cent in 2017, subsequently increasing in increments of 5 per cent until fully restored to 100 per cent, he said.

Platinum Property Partners chairman and spokesman for Axe The Tenant Tax Steve Bolton says: “We view the decision by the Irish government as a very positive message for our campaign.”

He adds: “Any decision by any government that has a negative impact on mortgage interest expense deductions for private landlords will have a direct correlation to the supply and affordability of rental property, and ultimately it will be the tenant who suffers with less choice, lower quality and higher costs.”

However, Mortgages for Business managing director David Whittaker does not believe that Chancellor Philip Hammond will reverse the buy-to-let tax relief changes first announced by his predecessor, George Osborne. He says there is no correlation between the Irish government’s decision and what landlords should expect from UK policymakers.

“The changes were introduced at a different time, in a different place and for different reasons. Unlike in Ireland, where the tax relief changes were part of emergency measures to restore the public finances, Osborne’s motivations were more long term.”

Pointing to Council of Mortgage Lenders figures showing a 12 per cent year-on-year decline in lending to landlords, Whittaker adds: “It could be too early to say but the year-on-year slowdown could be having Osborne’s desired effect of levelling the playing field for first-time buyers.

“What we know for sure is that buy-to-let purchases by landlords using limited companies are fast becoming the norm ahead of changes to tax relief, and the new PRA guidelines will only push more investors down this route.”