Landlords Around the World
The Residential Landlords Association has described the taxation of landlords in the UK as ‘one of the most hostile tax regimes in the western world’. The comments come after the recent changes to the way which landlords are taxed.
Australia’s housing market suffers from many of the same problems as the UK. Prices in major cities are increasing dramatically and it is preventing first-time buyers on the average salary from being able to afford a house. Investors in Australia are treated very generously by the tax system. Landlords are able to deduct their mortgage interest and other costs from their rental income, and they also have the option to ‘negatively gear’ their property investment, both contributing to rising house prices. This generous treatment for landlords means they are able to make a loss and offset this amount against other income, including from employment.
Upon selling, Australian investors receive a 50% reduction on Capital Gains Tax if they can show they have owned the property for more than 12 months. Unlike in the UK, individuals selling second homes have to pay an additional rate of CGT than investors when disposing of an asset. Similar concessions for investors also apply in New Zealand where negative gearing is allowed and there is no CGT at all for investment property unless there is proof that it was purchased solely for resale.
“Governments are spending billions of dollars in tax subsidies for people who are already comfortably housed or investing, pushing up housing prices and debt to unprecedented levels.”
In the United States, tax breaks for property investors are not as generous, but landlords can offset their rental losses under specific circumstances. Rental income is considered ‘passive income’ and therefore losses on rental properties can be offset against other forms of passive income, for example interest on cash, gains on stocks or other capital gains.
Passive activity requires the declaration of income on which you are then taxed, but for losses, you can only deduct losses to the extent that you have passive income. The non-deductible passive losses accumulate, and upon sell of your property, the accumulated losses can be taken at that time.
Canadian landlords are able to deduct interest expenses, mortgage fees and the cost of maintaining and managing to their rental properties from their rental income. A net loss on a rental property, however, cannot be deducted from overall income. They also benefit from a 50% CGT reduction when an investment property is sold.
Most people are renters in Germany, and therefore unsurprisingly, landlords are treated very favourably. Germany permits landlords to deduct 100% of their mortgage interest from their property income, to claim rental losses against their other income and to deduct depreciation costs. Notably, landlords are not required to pay CGT at all on the disposal of any property owned for more than ten years.
It is therefore to be expected that landlords in the UK feel a little hard done by. Given the political climate, this is unlikely to change anytime soon. As ever, we encourage you to seek professional tax planning and guidance.