More than a third of landlords are considering ways to cut their annual spending as their tax burden increases, a move that will hit the tradesmen and professionals who support the property industry.
Through pre-tax spending on running their portfolios, landlords currently support thousands of jobs with their £15.9 billion contribution to the economy. The figure has more than doubled from 2007’s estimated £7.1 billion, due to the rapid growth of the private rented sector and climbing costs per property.
The research conducted by Kent Reliance, part of OneSavings Bank plc, found that the most significant expenditure incurred by landlords is the cost of property upkeep, maintenance and servicing, totalling £5.5bn. The costs include service charges and ground rent for landlords (£2bn), insurance (£963m), utilities (£904m) and other associated fees of letting property (£1.1bn).
The average running costs landlords face to run their property annually, before tax or mortgage interest, amounts to £3,632 per annum. This amounts to a third of rental income, rising by a quarter in the last decade, without factoring in increasing taxes.
The average yearly running costs for landlords is broken down as the following: £1,025 is spent on maintenance, repairs and servicing, with £870 spent on letting agent fees per property. £374 is typically spent per property each year in ground rents and service charges. Annual home insurance tends to come in at £181, followed by legal and accountancy fees totalling £121. Administrative and license fees result in a further £41 annual cost. An additional £652 is lost in void periods each year.
John Eastgate, Sales and Marketing Director of OneSavings Bank, said: “Landlords may seem like an easy target for political point scoring, but they play a vital role in the economy.
“Not only do they house a huge proportion of the country’s workforce, bridging the housing demand and supply gap, their spending supports thousands of jobs – whether builders, cleaners, lawyers and accountants or letting agents.”
A recent survey by BDRC Continental revealed that landlords are reacting to rising costs and higher tax bills with 36% already reducing or planning to reduce their spending. One-in-five are planning to raise rents. There will be a direct impact on the industries and jobs that rely on landlords for revenue. The total planned cuts would reduce spending by more than £500million a year across the private rented sector.
The most popular area identified by landlords for potential cost cutting was property upkeep and maintenance at 17%, followed by letting agent fees and mortgage costs, both 10%. Those landlords anticipate they will reduce spending on letting agent fees by 28%, property maintenance and servicing by 21% and mortgage costs by 15%.
Eastgate added: “Trying to tackle the housing crisis by targeting landlords with punitive taxes is very simple and politically highly palatable, but has unintended consequences.
“Either it means less work for all those who support the property industry, or it means tenants will have to foot the bill for the government’s tax raid, or both.
“One side effect of the recent changes, and rising running costs, will be the professionalisation of the sector as amateur and accidental landlords leave the market. There is nothing wrong with having fewer, bigger landlords, but that alone will not help more young people get homes.”
At TaxAssist Accountants we work with landlords and those with second properties to provide a great range of property tax advice.
If you’d like some advice on your rental income or Capital Gains Tax, please don’t hesitate to arrange an initial consultation with your local TaxAssist Accountant today on 0800 0523 555 or via our online enquiry form.