The Office of Tax Simplification (OTS) and Propertymark have together called for further clarity when it comes to property income tax rules.
A new report has been published by OTS, with support from Propertymark, covering the Income Tax rules for residential property income and exploring the common complexities, issues, and concerns facing taxpayers, outlining several key recommendations for change.
In the summer, Propertymark responded to the OTS’s request to seek views on how the taxation of property income could be simplified, and with taxation being a key topic of contention for members, the industry body conveyed the frustration from agents around how the current tax regime does not serve the sector’s best interests.
Timothy Douglas, head of policy and campaigns at Propertymark, said: “Our members tell us that the taxation system is not working, the right incentives are not in place and too many costs are being put on landlords and letting agents, which are ultimately passed on to tenants through higher rents.
“Propertymark believe that the current tax system is too complex for landlords and by digitalising the process, will allow other professionals who are better placed, such as bookkeepers to provide this service on behalf of landlords.
“The sector needs a tax regime that promotes an environment where landlords benefit from investing in property rather than acting as a further deterrent to leave the sector or not grow their portfolios.”
According to Propertymark, landlords renting properties in the private rented sector have seen their tax burden increase in recent years, thanks to higher rates of property taxes on buy-to-let properties and a withdrawal of tax relief on mortgage interest costs, amongst other things.
It was noted in the report the importance of HMRC accepting multiple professionals to help with the new tax filings and recommends that HMRC should not go ahead with Making Tax Digital until these issues have been resolved.
In its consultation response, Propertymark argued that the tax system is too complex for landlords but said it was pleased to see the report recommending that HMRC make it easier for landlords to register for and report their income online for UK tax purposes and questions whether the initial and medium-term threshold for entry into the new system should be increased above £10,000.
Propertymark also went on to say that there have been instances where landlords do not know where and how to pay the taxes they owe.
Landlords in self-manged properties and tenants who have to deduct tax from their rent do not always declare their income, therefore putting significant pressure on agents to ensure that tenants and landlords are compliant.
Although the furnished holiday lettings regime can provide some tax benefits, Propertymark said that this it is not widely used and adds a complex layer to the tax rules which apply to property income and that the UK Government should consider the need for a separate tax regime for furnished short-term lets as it gives certain tax advantages over the wider residential property income rules due to the industry body believing that this disincentivises using properties for the PRS.
