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Why BTL (buy-to-let) equals “Big Tax Let-off”

The private rented sector in the UK has witnessed explosive growth since rent restrictions were abolished by the Thatcher government in the late 1980s, a period which has seen thousands of new property investors take up the opportunity to become landlords. Owing to Britain’s acute shortage of new housing, much of this growth has come at the expense of today’s younger generation – often dubbed “Generation Rent” by the media – who are facing higher house prices and longer and longer waiting periods before they can get on the property ladder themselves.

But do first-time buyers and landlords compete on a level playing-field? Despite the political rhetoric that Britain should be a “property-owning democracy”, direct support from the taxpayer to help owner-occupiers get on the property ladder has been whittled away to almost nothing ever since Gordon Brown finally abolished MIRAS (Mortgage Interest Relief at Source) during his first term as Chancellor. However, landlords have been far more fortunate: this study estimates for the first time the full value of the enormous range of tax reliefs which landlords are currently able to claim, which IF argues are worth around £13 billion per year.

This report probes some of the questions that ought to be at the heart of Britain’s housing debate. Why does the Exchequer give so much support to landlords when it gives so little to young families who dream of owning their own home? And is it fair to give such a large subsidy to a group who are predominately wealthy and middle-class? IF argues that only if we reform the way landlords are taxed to create a level playing-field between them and first-time buyers can the ambition of a property-owning democracy ever be realised.