Weekly tax brief

Should the cladding tax rules go further?

23 March 2021
The news of a new tax to help fund cladding issues will be gratefully received by many homeowners. Hundreds of thousands of leaseholders have been impacted by the issue in recent years and it follows an announcement earlier this year by the Housing Secretary Robert Jenrick that £5 billion will be set aside to replace unsafe cladding on affected buildings.

How the new fund will work for leaseholders has been announced previously with it primarily focusing on buildings identified as being most at risk, namely those over 18 stories. The fund also sits alongside a loan scheme for leaseholders in smaller buildings where the repayments will be capped at £50 a month.

Some believe the measures do not go far enough and, from a tax perspective, there is a particular anomaly between how landlords and ordinary homeowners are affected by any cladding costs.  

As it stands, costs for dealing with cladding issues has been largely dealt with by leaseholders paying increased service charges on their property. For a buy-to-let landlord, such costs should be deductible from their taxable profits from renting out the flat in full. In contrast, those who live in the property personally, suffering the associated stress of living in an unsafe building, and for whom the cost potentially represents a more material sum receive no tax relief at all.

The fund and loan scheme go a long way to ensure that all leaseholders are not unfairly treated but perhaps the government could go further and try to redress the seeming disparity in tax treatment between landlords and owner-occupiers. One way to achieve this could be to look at introducing an income tax relief, equivalent to any costs incurred personally. Income tax relief on your own home is not unheard of and a number of countries offer tax relief for mortgage interest paid, helping young people get on the property ladder.

Such a measure could help level the playing field between the different types of homeowner and further alleviate the costs suffered by leaseholders through no fault of their own.