The buy to let landscape is always changing – and this year is no different!
As the government continues to pivot towards more ‘tenant friendly’ policies, there are several key pieces of legislation that are set to have an impact on landlords in the UK from April 2020.
In this post, we explore the changes, and examine the potential impact on landlords.
Mortgage Interest Tax Relief
Perhaps the biggest upcoming change relates to Mortgage Interest Tax Relief.
In the past, landlords could offset 100% of their mortgage interest against the rental income – until the 2016/17 tax year, landlords could deduct mortgage interest and other costs from their rental income, before calculating their tax liability.
Since April 2017, this has been phased out, and replaced with a new tax relief system. From 6 April 2020, landlords won’t be able to deduct any mortgage expenses from rental income to reduce their tax bill.
Instead, they will receive a tax-credit, based on 20% of mortgage interest payments. This has a big impact on higher-rate taxpayers, who effectively received 40% tax relief on mortgage payments under the old system.
EPCs and Energy Efficiency
The government is set to tighten the Minimum Energy Efficiency Standards – in a move that will force some landlords to make improvements to the efficiency of their properties.
This is the culmination of efforts that began in 2008, when the initial legislation came into force requiring every property to have an EPC before being put on the rental market. Landlords have not been able to let or renew the tenancy on a property rated F or G on the EPC since April 2018.
From 1 April 2020, this will be extended to all existing residential tenancies. That means that you will need to make improvements on any properties not rated E or above, even if the current tenancy began before 1 April 2018.
There are some exemptions to this rule, and at CJ Property, we can provide tailored advice on the best way forward to ensure that your portfolio complies with the new standards.
Capital Gains Rules
The new tax year also sees some significant changes to capital gains tax rules, which is likely to have a big impact on landlords and property investors.
The changes will impact on the amount of time landlords have to pay capital gains tax bills, claiming tax relief on properties you previously lived in, and letting relief.
Capital Gains Payment Deadline
Currently, capital gains tax is paid through a self-assessment tax return – meaning the money doesn’t have to be paid until the following tax year.
From April 2020, this money will need to be paid within 30 days of completion – and failure to pay will lead to fines. Landlords and property investors looking to sell property will need to take this into account, as it could have an impact on cash flow and strategy.
The capital gains tax rates will remain the same, at 18% for basic rate taxpayers, and 28% for higher rate tax payers – so it will not impact on the overall cost.
Tax relief
There are also some changes to PRR (Private Residence Relief) that could have an impact on some landlords.
Currently, PRR gives homeowners 18 months of relief from Capital Gains tax when selling their primary residence. Put simply, it means as long as you sell a property you lived in within 18 months, you don’t have to pay Capital Gains tax on the profits.
From April 2020, this time period is being reduced to 9 months. This could have an impact on ‘reluctant landlords’ who had planned to rent out properties on shorter lets before selling.
Letting relief
The final change to tax rules relates to letting relief.
Currently, this can be claimed by landlords who live or used to live in a residential property that is now let out. It can be used to offset up to £40,000 (£80,000 for a couple) of capital gains tax owed on a property.
From April 2020, landlords will only be able to claim letting relief if they live in a property when it is being sold, and share occupancy with their tenant.
Electrical Safety Regulations
Subject to parliamentary approval, the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 look set to become law from April 1.
This will require landlords to carry out electrical safety checks on all private rental properties. Under the proposed legislation, landlords will need to ensure that electrical installation inspections and testing are carried out for all new tenancies from July 1st 2020, and from April 2021 for existing tenancies.
It will mean that all fixed electrical installations must be inspected and tested at least every 5 years by a qualified person. The landlords will be required to obtain an inspection report (and a completion report on any works), supply it to each tenant within 28 days and retain a copy of this report.
Breaching the regulations will carry a stiff penalty, of up to £30,000 per property – so it’s essential that landlords take this seriously! At CJ Property, we can arrange for inspection and reporting on behalf of our landlords.
Further forward – The End of Section 21
Looking beyond April 2020, there are some further proposed changes that could have a big impact on landlords.
The biggest upcoming change is the outline plans to end Section 21 – the legislation that covers no-fault evictions. If implemented, this change will create open-ended tenancies, removing private landlords’ ability to evict tenants without a good reason – even at the end of fixed-term agreements.
Read our blog The End of Section 21 for additional information about the proposed changes to Section 21 legislation and the potential impact for landlords.
Final thoughts
It isn’t all bad news!
The UK rental market continues to show positive growth, with rents predicted to rise in the coming months.
Hull and East Yorkshire has some fantastic opportunities for both aspiring and established property investors, with affordable prices and options to meet a wide range of strategies.
Make the right decisions, and buy to let property is still a great place to invest.
Keeping Landlords Updated at CJ Property
At CJ Property, we’re committed to looking after our landlords and to providing the best possible levels of service and value.
Our expert team is at the forefront of the industry, and we’re here to keep you updated about all the upcoming changes to relevant legislation. Providing a proactive service, our mission is to ensure you are always prepared and armed with the information you need to make the right decisions for your portfolio.
For additional information on any of the upcoming changes, or to talk to a member of our expert property management team, please call 01482 645270 today
