For many generations, farmers and landowners provided a significant proportion of the rented housing in rural areas. Generally, wages in rural areas are much lower than in towns and cities, renting from the local farmer is the only option available to many families.
Equally, a good proportion of those who work in the countryside are provided with housing for the better performance of their jobs – farming, forestry, other occupations supported by the rural economy. Some are provided with housing when they retire; a philanthropic farmer perhaps using this as a form of pension for a loyal employee.
In recent tax changes our Government has either not recognised this, or, is actually attempting to reduce the supply of rural rental homes. While we acknowledge and support the Chancellor’s desire to make houses available for young families who wish to buy, for many on low wages, in the rural economy, this will never be an option.
If the tax measures lead farmers to sell properties our villages will become even more polarised.
Taking away rural rented housing will not automatically make these houses available for new families, they will be sold to commuters on higher wages from the towns and cities. Some will be sold as second homes to those who can afford the extra tax.
The Annual Tax on Enveloped Dwellings (ATED) is a tax designed to hit foreign investors in the London property market. From April 1, 2016, it is an annual tax on houses worth in excess of £500,000 which are owned within an ‘envelope’ (i.e. a Limited Company or other structure) and not commercially rented out or used within a trade. A large proportion of farming businesses run their businesses as Limited Companies and it does not take much for a traditional Estate cottage, in a home counties ‘commuter village’ to be worth in excess of £500,000. While those rented commercially will be exempt, as will those occupied by farmers/farm workers, our understanding is that those occupied by employees, for the better performance of their duties, will be ‘caught’ and the tax must be paid. Clearly, farmers will change their behaviour because of this new tax and we strongly suspect that it will lead to a reduction in employees offered a house within their place of work.
Mortgage Interest Relief
In his 2015 budget, the Chancellor restricted mortgage interest relief to the basic rate of tax. Private landlords of rental properties have been able to deduct interest on any mortgage and offset this at their own marginal tax rate. Soon this will be restricted to the basic rate of tax only. This is designed to ‘hit’ private Buy-to-Let investors, once again, largely in towns who are distorting the housing market. However, it could significantly reduce the supply of private rented houses within rural villages. A number of entrepreneurial farmers and landowners have taken advantage of low interest rates to borrow money and construct more rented houses on their farms and estates. Because of relatively low rental yields this strategy only worked because the whole of the interest on the mortgage can be offset against the rental income. Restricting this to the basic rate of tax only will make this unviable and stop farmers increasing the housing stock in the countryside.
SDLT (Stam p Duty Land Tax)
The latest change is that all purchasers of second homes will pay an additional 3% SDLT. Again, designed to reduce demand from buy-to-let investors in towns and those buying second homes in tourist areas. The knock on effect is that fewer farmers and landowners will purchase additional houses close-by for occupation by those working within the countryside; the costs will be too great to make economic sense. In addition, the increased cost of acquiring properties and the costs of certain transfers within farming families may mean that farmers are more likely to sell their cottages rather than transfer them to another family member and face an increased SDLT charge.
Capita l Gains Tax (CGT)
From April 2019 the Taxpayer will need to pay an estimate of the CGT payable on the sale of a residential property 30 days after completion rather than the normal date of January following the year of sale. So, if a farmer is forced to sell, then tax payment dates are accelerated.
While we applaud the Government’s proposals to increase the supply of houses for purchase by young families, this, again, seems focused towards towns and the Rural Economy is forgotten. If these measures encourage farmers to sell off properties, they could still be bought as second homes because that type of buyer will either be sufficiently well funded to pay the extra tax or they will adjust the price downwards.
We are very concerned that the tax changes as above will significantly reduce the supply of privately rented houses for those working in the Rural Economy and our villages will become even more polarised.