Overworked by “unearned income”

Anyone who derives an income from property is regarded, in tax terms, as benefitting from what is referred to as “unearned income”.

This was always regarded as a source of wry amusement in my home when growing up. My single parent mother kept body and soul together by running some bedsit and later student houses.

These variously involved her managing endless building repairs, buying furnishings, arranging viewings, organising maintenance and cleaning, collecting rents and emptying meters, as well as dealing with every variety of difficult tenant from those making amatory advances to those determined to live free of charge. On particularly busy, stressful days my mother would roll her eyes and utter the familiar refrain, “All this and unearned income...”

By the time she was in her early sixties, my mother once stayed up all night getting a house ready for a group of students, and after being subjected to an avalanche of non-stop telephone enquiries over several weeks, her nerves became so shredded that when taken on holiday to recuperate, she quite literally said not a word for an entire week.

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At that point, thinking that she might succumb to what the Japanese refer to as “karoshi” (“death by overwork”) the old joke about “unearned income” didn’t seem quite so funny.

In fact many people share the Government’s view that income from property is indeed “unearned income”. Tell someone you are a full-time landlord and you can be sure many people will assume that you are a person of considerable leisure.

“What do you do all day?” is the inevitable bemused enquiry.

In truth too, there really are occasions when income from property and land literally is “unearned income”.

In days of old, when rich “absentee landlords” derived huge rents from estates they hardly ever visited, how else could you describe their income when compared to labourers and factory workers putting in 12 hour shifts six days a week? That was true “earned income” and rents certainly were not earned.

But the problem with property taxation is that while some landlords derive “unearned income” from their property (particularly if they do next to nothing with it), others are working incredibly hard.

Badly managed

The difference is reflected in the fact that while some properties are badly managed and left to rack and ruin, others are meticulously managed.

Yet the law makes no distinction between these radically different types of landlords; they are all beneficiaries of “unearned income” and not worthy of the tax breaks – such as pension contribution relief – afforded even to mega-rich investment bankers.

There are a couple of reasons however why Government should rethink their “unearned income” classification. For one thing, so much paperwork and maintenance documentation is now required with owning rental property – Building Energy Rating Certificates, inventories, gas and electrical safety checks, fire alarm tests, deposit protection certificates – that it is impossible to think of property as anything other than a knowledge-intensive and time-consuming business.

But, secondly, if property is blanket taxed as “unearned income”, then what signal is Government sending out to landlords everywhere? You can hardly criticise some incompetent landlords for neglecting their properties when taxation law assumes that there is no “work” involved in their management in the first place.

What the Government should be doing is encouraging a hard-working, meticulous breed of landlord who treats owning property with all the dedication of the most diligent company employee. The law should recognise that owning, managing and developing property is of fundamental importance to the health and well-being of any community and that professional landlords are truly “earning” their money, not left to die from exhaustion at the hands of “unearned income”.