The UK has its first Labour Chancellor of the Exchequer in 14 years, and its first ever female Chancellor in Rachel Reeves.  

Whilst the latter achievement is undeniably overdue, the former statement might cause some landlords pause for thought. Afterall, private landlords have not always topped the Labour Party’s Christmas card list.  

However, I suggest that we need to wait and see what Ms Reeves has to say when she delivers her first budget statement later in the year before passing judgement. Although, this presents a bit of a challenge.  

Given that the Office for Budget Responsibility (OBR) requires 10 weeks’ notice of a ‘fiscal event’ it is unlikely that Gladstone’s budget box will get a trip down Whitehall until October at the earliest, meaning that we may be left guessing about the new Government’s plans.  

What can we surmise so far? 

Firstly, it is reassuring that the new Chancellor has committed to not delivering a Budget Statement without the OBR’s sign-off, and she has confirmed that a date for the statement will be announced ahead of time. Both of these points allow markets to prepare and set expectations.  

We also need to remember that the level of financial harm dealt to private landlords over the last few decades has not always corresponded to traditional political divides.

The single most disruptive (and destructive) Treasury of recent decades was overseen by Conservative George Osborne. Inversely, my person (possibly unpopular) opinion is that the late Alastair Darling’s three years at Number 11 were perhaps the most benign of the years immediately before or after.  

It is not, therefore, a given that this Parliament will see a raid on landlords of the sorts preferred by the last few occupants of Downing Street’s second most famous residence.  

There is a fairly good chance that there will be disruptive announcements though, particularly if you consider recent history.   

Since 2007 almost all fiscal events in Westminster have involved a change to landlords’ (specific) tax liabilities. For instance:  

• In October 2007, then Chancellor, Alastair Darling shook up the CGT regime by eliminating taper relief, scrapping the existing system of indexation and introducing a new (lower) flat rate of tax on chargeable gains.  

• In 2009 the Treasury announced that from the following year households would no longer be able to retain any surplus, if their LHA payments exceeded the cost of rent. 

• In 2010, infamous former Chancellor, George Osborne hiked CGT on non-business assets to 28 per cent for higher earners.  

• 2011’s Budget Statement was a rare, relatively positive affair introducing cuts to the way SDLT is calculated on the purchase of multiple dwellings.   

• The Autumn Statement in 2014 finally saw the end of the slab system of calculating SDLT bills.  

• Then came 2015, with its two budgets and an autumn statement, which between them saw the abolition of the Landlords’ Energy Savings Allowance, the introduction of the additional SDLT levy and the measure that has become known as s24.  

• 2015 also saw the announcement of £1.3bn of investment to transform tax returns via Making Tax Digital, although implementation hasn’t exactly gone to plan.  

• In 2016 wear and tear allowance was abolished. 

• In 2017 implementation of Section24 began. 

• In the 2018 Budget it was Philip Hammond’s turn to tinker, this time with Private Residence Relief and CGT. 

• 2020 saw the end of the transition period for Section 24, and the end of higher rate relief on finance costs for most landlords.  

• 2021 saw the deadline for making CGT payments increased to 60 days  

• The least said about the impact of budgets in 2022 the better; and finally….. 

• The last few years have seen the annual exempt amount of gains allowed before tax gradually lowered to just £3,000, arguably negating any impact of the cut in the higher rate of CGT to 24 per cent in the Spring of 2024.  

You get the picture….. 

The point is that we’re seen as fair game. Despite the fact that PWC estimate the PRS in England and Wales contributes £45bn to the economy and supports 390,000 jobs landlords are neither viewed as simple retail investors, trying to plan for their future, or businesses investing in a going concern which contributes to the economy.  

For the most part we fall between the two, which is not a great place to be when it comes to arguing that we need a fair settlement. 

Considering the generally accepted state of the British economy, and the fact that all new governments have ambitious plans that require funding, we have to assume that there will be a desire to squeeze cash from anywhere viewed as politically expedient.   

Looking at the list of headline changes above, it is likely a fair bet that CGT and SDLT are being explored by the Treasury, but what could that mean? 

CGT:  A no-brainer?  

Unpalatable as it may be to any investor, from a political standpoint bringing CGT on non-business assets into line with Income Tax thresholds looks like an easy win.

The hike wouldn’t hit ‘working’ income, that Labour was so eager to identify as off-limits during the campaign.

It wouldn’t stifle ‘industry’ if the rise was limited to the residential property bands.

And it could actually be quite popular with the majority of people who never have to pay CGT.  

On the other hand, it also wouldn’t raise a great deal of revenue for the Exchequer as it would deter disposal of assets, and crucially it would make investment in new property far less attractive to those doing so as an (unincorporated) individual thereby potentially impacting housing supply.  

Any decision taken will no doubt depend on a thorough forecast, which is something the NRLA is keen to get ahead of in coming months.  

SDLT: Nothing but pain? 

Any rational, objective, observer looking at our tax system would abolish SDLT immediately. It only seems to serve two purposes (i) deterring transaction and therefore limiting economic activity (ii) generating something akin to £12bn in revenue for HM Treasury every year.  

Point two, of course, is the problem. No government, no matter how rational, wants to give up billions of pounds of income every year, no matter how nonsensical the tax that generates it has become.  

This is compounded by the fact that since the introduction of the levy on the purchase of additional properties, landlords and second-home owners can be singled out for special treatment.

Politically, it is difficult to see much of a downside in ramping up the levy. After all, it only affects those with additional property.  

Economically, the story is a little different though, as demonstrated by analysis commissioned by NRLA and undertaken by Capital Economics. This study modelled the impact of the levy and concluded that it is holding back investment and therefore suppressing the supply of homes.  

In fact, Capital Economics estimated that were the levy to be removed a further 900,000 rental properties would enter the market over the next ten years, increasing government revenue to the tune of £10bn.  

One can only guess what the impact of abolishing SDLT altogether would be, although it is perhaps unlikely that the Government would be willing to forego a safe revenue stream for the prospect of greater economic activity.    

So, what’s next? 

The State Opening of Parliament on 17 July will give us a better idea of what the Government’s immediate priorities are likely to be, and therefore what they may need to fund. Working backwards we may then be able to make an estimated guess about how aggressive HM Treasury may be in the Autumn.  

However, the Chancellor could take a different approach and plan for the future beyond their manifesto pledges.  

What is needed from the Government is a holistic view of investment in the PRS, and a clear and honest appraisal of what they want from the private sector.

If we are to be relied on to provide a significant share of all homes, then we need a framework that supports investment and recognises the worth of the businesses that provide them.

This means looking beyond the maximisation of tax revenue in the short-term and considering the contribution of a vibrant and sustainable sector.  

In the lead-up to Rachel Reeves’ first fiscal event the NRLA will be exploring ways in which the tax system can be used to both deter and encourage investment and suggesting ways in which the Treasury might provide desperately needed solutions to the housing crisis.   

Image of Rachel Reeves courtesy of Parliament.uk via Creative Commons. Licencing details: https://creativecommons.org/licenses/by/3.0/