The government is ruling out any re-think on its proposals to reduce buy to let tax breaks from next year.

The Financial Secretary to the Treasury, David Gauke, has written to the Residential Landlords’ Association to emphasise the determination of the government to plough ahead with the changes, first announced in July by Chancellor George Osborne.

Gauke’s letter is uncompromising, saying the Osborne proposals are essential to establish “a fair tax system”.

Gauke’s letter says: “By restricting cost relief to the basic rate of income tax, all finance costs incurred by individual landlords will be treated the same by the tax system.”

The RLA, in an earlier letter to Gauke, had made the point that the private rental sector should be treated like any other business for tax purposes. 

Gauke’s response to this point includes this key statement: “Landlords will continue to get full income tax relief on the costs incurred in letting out a property, such as letting agency fees and replacing furniture, as others do on the costs they incur in carrying out a trade. Finance costs are different as having a mortgage on a property also allows the landlord to purchase a more expensive property and incur larger gains on the investment than they would without the mortgage. The government wants to rebalance relief for these finance costs and ensure that all individual landlords get finance cost relief at the same rate.”

Gauke insists that the phased reduction on tax relief for landlords will not lead to a rise in rents “due to the small overall proportion of the housing market affected.” 

The minister insists only one in five landlords will pay more tax as a result of the change, which will be phased in over four years.