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News : Property Last Updated: Nov 25, 2013 - 9:59 AM

UK taxpayers providing £5bn a year subsidy to buy-to-let landlords
By Finfacts Team
Nov 25, 2013 - 8:56 AM

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The Intergenerational Fairness Index takes nine indicators that most affect young people’s lives and outlook – unemployment, housing, pensions, government debt, participation in democracy, health, income, the environment and education – and puts them together to create an aggregate of how things have changed over the past 20 years.

UK taxpayers are subsidising buy-to-let landlords with £5bn a year because of loopholes that allow rental income and capital gains on property sales to be exempt from taxation, according to new research.

The Intergenerational Foundation, in a report published on Monday, outline the ways that tax on rental income and capital gains can be avoided legally and the estimated cost of each.

The report argues that the growth of BTL investment by older people has come at a high price for young people with almost two-thirds of landlords in the 46-65 year old age group.

BTL investors receive a number of unfair subsidies including tax relief on mortgage interest, tax relief on wear and tear (10% of rental income for furnished properties , tax relief on letting agents’ fees and tax relief on buildings and contents insurance, which are not available to other owner occupiers.

Ashley Seager, IF co-founder, commented: “It is clear that most of these tax write-offs go to older landlords, keen to take advantage of both the lack of housing supply and the demand for properties to rent by the under-35s (52% of all private tenants.”

The foundation received information from the Revenue & Customs for the 2010-11 tax year, and found that 1.2m landlords claimed £13bn as deductions against taxable income, of which just under half, £6bn, was in respect of interest. Landlords also received another subsidy of £2.52bn by claiming repair and depreciation expense, while other deductions from income included legal and estate agency fees, insurance and ground rents.

The calculation of the value of the annual tax break assumes that all landlords pay higher rate taxes.

If a landlord occupies a BTL property for as little as six months in the 36 months prior to its sale, gains accrued on the property in that period are not subject to capital gains tax

The IF says BTL has seen returns on investment increase threefold between 2000 and 2012, out-performing equities, property equities and bonds. Its favourable tax status means that investing in BTL has been a rational decision for many older people frustrated by low returns on traditional pension savings.

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