It sometimes feels like the changes the Government makes to BTL (buy-to-let) laws are never ending. 2020 will be no different; a number of new pieces of legislation are set to be introduced in April, which will drastically alter the way landlords and investors operate. In this blog post, we’ll highlight some of the biggest changes, so that you can prepare yourself and take the necessary steps to ensure you remain compliant with the law.
Arguably the financial changes proposed for the new tax year will have the greatest effect on investors. In the past, landlords were able to deduct all of the costs associated with their rental properties from the income said properties produced. Only then were profits taxed. However, landlords are now being affected by a tax relief change which was first introduced in 2017 and which is being phased in gradually over a four year period. The change means that tax relief for these costs is being limited to a basic rate tax credit. For the 2020/21 tax year, landlords will no longer be able to claim tax relief on mortgage interest payments. Instead, they will receive a tax credit on their payments. More detailed information on how this will affect you can be found in our blog post.
Capital Gains Tax
Under current legislation, if you lived in your property before you let it out, you were able to claim Private Residence Relief (PRR – an exemption from Capital Gains Tax) for an 18 month period after you moved out. However, from April 2020, this period will be cut by half, meaning that landlords will miss out on nine months worth of Capital Gains Tax (CGT) relief when they come to sell their property.
Furthermore, those who let out a property which was once their primary residence used to be able to claim up to £40,000 CGT relief. From April 2020, landlords can only claim this level of relief if they have a shared occupancy arrangement with their tenant.
Energy Efficiency Standards
In April 2018, the Government introduced new legislation which meant that all rental properties were legally required to achieve at least an ‘E’ on their Energy Performance Certificate (EPC). This was only applied to new tenancies and tenancy renewals. In April 2020, this legislation is being updated and expanded so as to cover existing tenancies too. This is the case even if there has been no change in tenancy. Properties which do not meet the minimum requirements, that is, those which only achieve ‘F’ or ‘G’, will be classed as ‘unrentable’.
For some advice on making the necessary changes, read this blog post on our Estate Agency site. You’ll quickly see that it is not necessarily a costly process. Even so, a cost cap is in place as part of the new legislation; landlords will not have to spend more than £3500 (including VAT). As long as you make every attempt to improve the EPC rating of your property and spend £3500, you can submit an ‘all improvements made’ exemption.
Even if your property meets the minimum requirements, you should still look to its energy efficiency. As part of the Government’s long-term climate strategy, all properties will have to achieve at least a ‘C’ by 2030, if practicable and cost effective. There is also the possibility that an intermediate piece of legislation will be introduced to increase the minimum rating to ‘D’ by 2025, as is already the case in Scotland.
Article 4 Directions
At present, landlords can convert family homes into HMOs (Houses in Multiple Occupation) without planning consent, if the HMO will have fewer than seven occupants. However, many local authorities throughout the UK are now introducing city-wide Article 4 Directions, meaning that, if the property will be rented by three or more tenants, permission is required to facilitate the change of use.
The Government is now planning to abolish the Section 21 no fault eviction process and remove the Assured Shorthold Tenancy (AST). If they go ahead with the plans, new tenancies will either be classed as ‘assured periodic tenancies’ or ‘assured fixed term tenancies’.
Tenants would then be able to end their tenancies with only two months notice. However, landlords will have to demonstrate that they have a genuine reason for ending the tenancy, as detailed in Section 8 of the Housing Act. Acceptable reasons include breaches of the tenancy agreement, such as failure to pay rent or causing damage to the property. At present they do not include a landlord wishing either to sell or move into their property. Depending on the reason given, the notice period can be anything from two weeks to two months.
These changes are expected to be introduced later in the year, though information is scarce at the moment.
If you’re concerned by any of the points raised in this post, feel free to contact the Mistoria team on 0800 500 3015. We can advise you on any actions you need to take, as well as highlight properties which would be suitable for your investment needs; we specialise in Salford, Liverpool, Bolton and Manchester student investment property and regularly achieve combined yields of 13%.