The Daily Telegraph has undertaken an interesting exercise which effectively challenges Chancellor George Osborne’s assertion that buy to let tax changes are necessary to put investors on a ‘level playing field’ with first time buyers and other owner-occupiers.
Personal finance writer Richard Dyson describes the restrictions on wear and tear allowance claims and on off-setting interest payments as “brutal” and takes to task the Chancellor’s budget claims in July.
Then Osborne said: "The current tax system supports landlords over and above ordinary homeowners. Landlords can deduct costs they incur when calculating the tax they pay on their rental income. The ability to deduct these costs puts investing in a rental property at an advantage."
Dyson’s article suggests this may not be the case.
He takes into account not only the buy to let tax changes proposed by Osborne, but existing tax burdens such as capital gains tax - paid by the landlord but not by the owner occupier - and the fact that interest payments made by landlords are higher over time than those paid by owner-occupiers with repayment mortgages because the principal loan to a landlord is not reduced.
Dyson then makes a comparison between a hypothetical first time buyer and a hypothetical landlord.
Each borrows £225,000 and buys a home at £300,000 but the landlord has an interest-only loan and the FTB has a repayment loan. Each keeps the property for 25 years and an identical size of capital appreciation is assumed.
For the first time buyer, after 25 years the total gain on selling the property is £941,460; for the buy to let investor the total gain is £577,434.
It’s an interesting and closely-argued piece. You can read it here.