In Focus (2021, Qtr 3) - Taxation, mediation and policy innovation
Introduction
The NRLA is the only landlord-focused organisation which has a dedicated, quarterly research programme. Almost 1,100 current active landlords with portfolios in England or Wales took part in the Quarter 3 survey.
This survey focuses on issues around taxation, mediation and potential policy innovations that could improve the private rented sector.
Landlords were asked how they arrange their tax affairs, and how property related tax measures have impacted upon their business. Further to taxation, landlords gave their views on about dispute resolution and how policy could be altered to improve the mediation process between tenants and landlords. Landlords also identified a number of concerns around proposals to introduce lifetime deposits.
2021 Qtr 3 In Focus: Tax, Mediation and Policy
Taxation
Landlords clearly wish to keep things simple – they prefer less complex financial arrangements. For example, landlords typically don’t use a formal business structure to manage their property assets. They typically pay tax via self-assessment.
There is some evidence landlords are increasingly using limited company status, but more research is needed before a trend is clearly identifiable.
The impact of taxation on landlords
Capital Gains Tax (CGT) continues to vex landlords and be a paradox of government policy: the tax deters many landlords from selling property. The research also indicates that, unlike previous major changes to Stamp Duty (SDLT), the recent Stamp Duty holiday/window had little impact on landlords’ business strategies.
The conclusion from our research is that increases in wealth & property taxes are unlikely to lead to a rapid increase in landlords selling property. If fewer independent landlords is an additional policy goal, then increases in property and wider wealth taxes should be linked to tax windows and incentives.
Many landlords have yet to consider how best to manage their estate to minimise death taxes (Inheritance Tax, or IHT). Almost half of landlords surveyed stated they had "yet to consider" IHT. Among the over-65s this proportion is lower, but is still significant. Almost four-fifths (c80%) of landlords had never taken legal or professional advice about death duties and their estate.
Mediation, redress & lifetime deposits
Mediation & redress
Seeking possession of property can be a lengthy process for landlords, especially when the process goes to court. The NRLAs New Deal for the Private Rented Sector sets out a series of reforms which would benefit tenants as well as landlords.
Mediation involves a trained, impartial person acting as a referee in a dispute between landlord and tenant. At present use of mediation services is limited. There have been trials, most notably the Government’s own mediation pilot scheme, but take up has been low. The survey asked landlords to rank improvements that could be made to the mediation process and enhance the service.
The Government is also considering legislating to require all private landlords to join a redress scheme. Landlords were asked about redress. Awareness of government proposals is presently low, and there is much work to do before any proposition is put to the landlord community.
Lifetime deposits
The Government has announced plans to introduce lifetime deposits. However firm proposals have yet to be unveiled. The NRLA have made suggestions and recommendations on how lifetime deposits could be introduced.
Whilst the Government needs to further outline how lifetime deposits would work in practice before there can be an assessment of how landlords will respond, at present landlords are wary. There still exists a high degree of uncertainty and ambivalence towards lifetime deposits. Many landlord forsee situations where tenant disputes elsewhere weakens the reassurance a full deposit offers. For many landlords the current system based on tenancy deposit services work well.
If any lifetime scheme were to be put in place, I would not take on tenants who had any previous dispute with their landlord and I would make sure my letting agent found out if there were any previous dispute. That could unfairly disadvantage tenants who were being taken advantage of by an unscrupulous previous landlord. I can see there being enormous problems with this concept.
Student landlords
During 2021 the NRLA have been collaborating with the Higher Education Covid-19 Recovery Team of the Department for Education (DfE). This team was established to oversee the safe return of students to campus during 2021. The DfE team have collaborated with universities, student unions, and stakeholder groups across the UK. The DfE have sought to understand the pattern of students returning to university. The NRLA have asked "student landlords" to provide data which has been invaluable in supporting these objectives.
Though the data has been primarily of interest to government, we include in this edition of In Focus a short summary of the data landlords have generously provided.
2021 Qtr 3 In Focus: Tax, Mediation and Policy
