Unfortunately landlords across the country are feeling the financial strain arising from recent tax and regulatory changes in the property sector. In this blog post, with the help of a recent study from the London School of Economics, I’ll analyse how the UK compares to similar nations with regards to taxation factors and control of the private rented sector.
The LSE study reports that landlords in the UK definitely do have a right to be unhappy with the current UK tax regime. The UK hasn’t always been so inhospitable, but over the last decade, the large number of changes and tightening of tax codes has severely hampered the incentive to become a landlord in the first place. The report writes: “Individually and cumulatively, the recent changes have reduced the incentive to be a landlord. Landlords are observing the effects of higher taxes on returns, but taxation is not the only official lever: they also cite increasing regulation and bureaucracy and, importantly, the government’s negative messaging about private landlords and their role in the housing market.” Scanlon, Whitehead and Blanc; London School of Economics.
Landlords play an extremely important role in the wider UK economy. They provide both temporary and long-term accommodation to those who seek to rent rather than buy. Their rental properties allow students, families and individuals to quickly move and work around the country. (This ease of movement simply would not be possible if there wasn’t a fluid private rental sector.)
Overall, the private rental sector in the UK is at the lower end of the scale when compared to other western nations. Germany has the largest private rental sector in Europe with 47.3% of Germany’s population choosing to rent from private landlords. In the USA the numbers are similar to Germany with nearly a third (32.1%) of Americans renting housing. France have a similar sized sector to that of the UK (UK: +19.1%, France: +20.8%) and France also have a similar recent growth trajectory – since 2010 UK: +17%, France: +18%
Eastern Europe’s private rental sector is still in its infancy. Countries like Poland (5.4%) and Hungary (4.4%) both have a pretty small private rental sector. However, the general rental market across eastern Europe is expected to mature and grow massively over the next 5 to 10 years. Overall, from LSE data we can see that the UK has a relatively average market size in comparison to other similar nations, (something you wouldn’t expect considering recent comments in the media!)
The majority of the world views property as an investment that’s good for taxation purposes. This generally makes sense as a property has the ability to increase in value, and also generate an income for those looking to rent a property out. This means that applying a taxation method (such as VAT) is not be applicable. As a result, property is taxed in the same way other investment goods such as companies, shares and bonds are. The main focus of tax on property is the growth in a property’s underlying value and the income earned from rental. In the majority of countries taxes are applied once the deduction for costs has been accounted for. (This means investors only pay tax on their profits.) The main difference across the world is the definition of what can be considered as an eligible property expense. There is quite a significant variation between countries like America vs. more progressive high tax regimes like western Europe and Scandinavian countries.
