By the time you read this, Andy Burnham will be the new leader of the Labour Party - and be in charge of the country. Bold and outspoken, Burnham’s beliefs have already ruffled feathers in the property market. For landlords just about turning a profit, the rumours make for grim reading.
Burnham has long supported a reshuffle of the taxes paid by buyers, sellers, landlords and homeowners. We can get a flavour of what might become law by scrutinising Burham’s past rhetoric and analysing what he achieved as Mayor of Greater Manchester.
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Increasing fines levied on rogue landlords: while Burnham was Mayor, he oversaw a 43% increase in financial penalties on landlords engaged in malpractice.
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Imposing new regulations on the private rental sector: thanks to devolved power, these included a Good Landlord Charter, a state fund to help private tenants fight unlawful evictions, expanding compulsory purchase orders on empty properties and giving local councils power to reclaim Local Housing Allowance paid to landlords of substandard properties.
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Scrapping of council tax and stamp duty: Burnham is known to support the Fairer Share campaign group’s proposal to abolish council tax and stamp duty, replacing them with one with one annual property tax equivalent. In fact, he verbalised his support in this article published in 2010 by The Guardian.
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Tinkering with capital gains tax: rumours suggest capital gains and income tax rates could be aligned, hitting higher and additional rate income taxpayers hardest.
What change would mean for landlords
Active landlords who are growing their portfolios may be drawn to the savings made if stamp duty is scrapped, especially as an investor’s bill is higher thanks to the ‘additional property’ band.
But the devil is in the detail. Abolishing council tax and stamp duty would create two black holes that would need filling, significant given the country’s spiralling welfare bill. A land tax would shift fundraising to homeowners. Here’s how it’s expected to work.
A land tax picked up by landlords
A buyer won’t pay any stamp duty when they purchase a home. Council tax is also scrapped. Instead, every homeowner pays an annual land tax based on a brand new valuation of their property (not the current value, which was calculated in 1991).
The ‘homeowner’ aspect is critical as it will include landlords. The shift? We would move away from tenants paying their council tax bill to landlords picking up a new land tax. That’s not all.
While a land tax figure of 0.48% has been suggested for owner-occupiers (that 0.48% of a home’s newly evaluated value paid annually), this figure would be 0.96% for second homes – buy-to-lets included.
In theory, tenants will be better off without a council tax bill to pay. This new affluency would enable them to pay more, with landlords passing on the cost of a new land tax in the monthly rent. Yet it’s not as simple as asking a tenant to pay more rent.
A catastrophic fallout
The Renters’ Rights Act has changed the landscape. Rent increases are limited to once a year, so timing any adjustment is critical. Tenants are also empowered to challenge unfair rent inflation, using the First-tier Tribunal and a low £47 fee. And if tenants don’t agree with a rent increase, they can simply walk away by giving two months’ written notice. Recouping costs isn’t guaranteed.
There’s also the untested, unseen aspect. How would the rental market react if all rents went up, across the board, to cover a landlord’s new tax bill? What if there was an uneven uplift, with some, but not every, landlord increasing the rent? What if every tenant refused to pay more, preferring to keep the windfall in their pocket? What if a mass of landlords, pushed to breaking point by Burnham, exit the buy-to-let market?
Sketchy details create uncertainty
With a lack of a leadership rival, Andy Burnham has had the luxury of being sparse with his manifesto. It’s been speculation, conjecture and regurgitation of past sound bites. Letting Agent Today captured the mood with the headline ‘Burnham tax threat already hitting rental market’. It highlights how the spectre is enough to damage an already fragile sector. All eyes will be on the Autumn Budget, when plans may become clearer.
Leave now before a land tax bites
If political musical chairs and the prospect of paying yet another tax is enough to make you quit, sell to LandlordBuyer with your tenant still in situ. We don’t ask you to serve a Section 8 to evict your occupant. Simple sell as is, fast and for cash. Get your offer now or contact us to chat though your circumstances.