28 February 2020  /  By Andrew Ellinas LL.B.

Landlord Tax and Legislative Update

Renter's Reform Bill

The Queen’s Speech set out Boris Johnson’s Government’s “people’s priorities” announcing a Renters’ Reform Bill that will abolish the use of ‘no fault’ evictions by removing Section 21 of the Housing Act 1988 and reforming the grounds for possession.

Other main elements of the Bill include giving landlords more rights to gain possession of their property through the courts where there is a legitimate need for them to do so by reforming current legislation. The Government have also said that they will work to improve the court process for landlords to make it quicker and easier for them to get their property back sooner.

Electrical Safety Regulations

The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 which means that landlords will need to ensure electrical installation inspections and testing are carried out for all new tenancies in England from 1 July 2020 or from 1 April 2021 for existing tenancies.

Landlords must ensure that every fixed electrical installation is inspected and tested at least every five years by a qualified person and a report of the results of the inspection and test, supply it to each tenant within 28 days and retain a copy until the next inspection is due.

Proven breaches of the Regulations can result in the local housing authority imposing a financial penalty of up to £30,000.

Minimum Energy Standards

The legislative changes would make it unlawful to let residential or commercial properties with an EPC Rating of F or G to existing tenants from 1st April. The rules have applied to new lets in England and Wales since 2018.

It will become impossible for these properties to be marketed for rental until they are upgraded to meet the minimum standards. It is estimated that approximately 20% of non-domestic properties could be affected.

Landlords will need to assess the costs and viability of undertaking refurbishments, and possibly bringing forward properties for marketing prior to 2018 or renewing tenancies. Property owners should also consider how their property values may be affected.

Tenant Fees Act

Tenancy Deposits must not exceed the equivalent of five weeks' rent (unless the annual rent exceeds £50,000 in which case deposits are capped at six weeks’ rent).

Holding Deposits will be capped at no more than one week’s rent.

The amount that can be charged for a change to a tenancy will be capped at £50 unless the landlord demonstrates that greater costs were incurred.

The Consumer Rights Act 2015 is amended to specify that the letting agent transparency requirements should apply to third-party websites.

Alongside rent and deposits, agents and landlords will only be permitted to charge tenants fees associated with:

A change or early termination of a tenancy when requested by the tenant.

Utilities, communication services and Council Tax.

Payments arising from a default by the tenant where they have had to replace keys or a respective security device, or a charge for late rent payment (not exceeding 3% above the bank of England base rate.

Tax relief cuts on mortgage interest

From 6th April 2020, you won’t be able to deduct any of your mortgage interest payment from your rental income before paying tax – instead, the entire sum of your interest payment will then qualify for a 20% tax relief.

This means that a landlord getting £10,000 in rent and paying £9,000 in mortgage interest payments will end up paying tax on the full £10,000 – though the amount will still depend on their tax bracket. They will then be able to deduct £1,800 from their tax bill due to the 20% tax credit, leaving them with the final overall tax bill on their rental income.

Landlords in higher tax brackets could then end up paying much more tax than before, as they’ll be paying a percentage of the total rental income rather than the rental income minus their yearly mortgage interest payments. And the only tax relief they’ll receive is 20% of their interest payment, instead of the entire amount.

Accidental Landlords

Under current rules, when a landlord sells their former home after renting it out, they're allowed to shelter £40,000 of their gain from capital gains tax (up to £80,000 for married couples). However, under the new rules, announced in last Autumn's Budget, from April only landlords who live in the property with their tenants will qualify. Otherwise, you will be taxed on the amount it went up in value after you moved out, although you do get a grace period. From April 6 this period will be halved from 18 months to 9 months. .

Please call me if you require any further information or assistance.

Michelle Sharma
Head of Lettings

T: 020 7723 9988
E: This email address is being protected from spambots. You need JavaScript enabled to view it.

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