Call to end mortgage tax relief on buy-to-lets

Two policy experts who have had the close ear of the prime minister are recommending the government entirely abandon mortgage interest relief for landlords.

Neil O’Brien and Will Tanner, both former advisers to Theresa May, endorse ending tax breaks for buy-to-let investors as one of 10 ways to stop people buying homes as investments.  

This is despite the tax breaks being curtailed already, the duo acknowledges in their report -- seen as an attempt to reinstate the Conservatives as the party of home-ownership.

But O’Brien wants to go further, saying mortgage interest deductions that can still be made should be abolished fully, for either new investors or new properties let-out after a fixed date.

While the government “should protect existing landlords” with active investments, the mortgage interest relief system should be reformed in the future, as should their other ‘perk.’

“On a grandfathered basis, end loopholes within the CGT exemption for the primary residence,” adds the report, referring to landlords’ avoiding CGT on residential property.

Mr Tanner reflected: “We should rebalance the housing market away from owning for a return and towards owning for a home.

“It is a sobering thought that if Britain had maintained the balance between privately-rented and owner-occupied properties since 2000, we would have two million more families owning their own home.”

Put another way, the growth of buy-to-let (helped by favourable tax treatment) has “locked 2.2 million families out of [home] ownership,” argues O’Brien, the Tory MP for Harborough.

He also wants the Treasury to review the tax treatment of ‘wear and tear,’ saying while the new system after 2015 is fairer, it still offers landlords an advantage over owner-occupiers.

“Ministers could also look again at the generosity of the relief,” the MP says.

“Taken together, the reforms to mortgage interest rate relief and wear and tear allowances announced in Summer Budget 2015 were scored as raising £835 million a year by 2020/21.”

The report says the evidence from the 2015 and 2016 changes for landlords is that tax reforms can have a "positive impact on homeownership," but it notes that the “measures taken so far are not large enough to produce a step change in ownership.”