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Chancellor should use Budget to encourage growth in the PRS – claim

Newly-appointed Chancellor Rishi Sunak should use the forthcoming Budget to ‘produce a level playing field for taxation’ with the short-term letting sector.

That is according to David Alexander, joint managing director of property management firm Apropos by DJ Alexander.

Alexander believes that the Budget offers an opportunity for the Chancellor to encourage individuals to remain within – or for new investors to enter – the private rented sector (PRS) at a time when many landlords are shifting toward the short-term lettings sector.

Recent research commissioned by ARLA Propertymark found that almost half a million properties could be removed from long-term letting as landlords plan to exit the market in response to recent regulatory, financial and legislative changes to the PRS.

The study, which was conducted by Capital Economics on behalf of ARLA, found that 10% of the landlords sampled said they were ‘very likely’ or ‘fairly likely’ to change from long to short-term letting. If these figures were replicated among the wider landlord population this would equate to between 200,000 and 470,000 properties moving to short-term lets.

At the same time, ARLA Propertymark’s latest PRS report found that demand for rental accommodation reached a record high in January but that rental stock fell to the lowest level seen in seven months.

Meanwhile, the Office for National Statistics (ONS) has forecast that the UK population is ‘projected to increase by around 6,000 every week over the decade to 2028, which has the potential to create even more pressure on demand in the housing market.

“With the final phase of George Osborne’s policy of decreasing tax relief on borrowing coming into force on April 6th, many landlords find themselves at a crossroads considering whether to remain in the long-term private rented sector or to shift toward short-term letting,” says Alexander.

“Since Osborne started to reduce the tax relief available to landlords it has become more expensive to buy homes, more expensive to operate rented property and, from this April, the capital gains tax relief is higher when the property is sold unless the landlord lives in the property with their tenants.”

“After many years of removing financial incentives for anyone entering the private rented sector the forthcoming Budget provides an ideal opportunity to show faith and support in the market by providing some inducements to ensure the market remains viable for individuals and investors who want to remain involved.”

Alexander says the Budget also offers an opportunity to ‘remove the anomaly between long and short-term letting’ which are treated very differently for tax purposes.

He adds: “The favourable tax status given to short-term letting was aimed at encouraging investment and rejuvenating UK holiday destinations. Surely the long-term letting market, which provides permanent homes for millions of individuals, deserves comparable treatment to a market providing holiday homes for tourists? If the drift from long-term letting toward short-term and holiday letting is to be stemmed, then removing financial disparities is overdue.”

According to Alexander, while the government seeks to gain income from business, it appears to be ‘detrimental and unfairly skewed against the PRS’. If the sector is to continue to provide homes for millions of people, he says the government must recognise tis value and ensure it is not being excessively taxed in the future.

“Demand is increasing and needs to be met and the PRS, if is fairly dealt with financially, is an essential element in meeting this demand,” he concludes.

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