Lower heating bills for renters – Landlords do you need to make changes?

From 1 April 2018 all privately rented properties must have a minimum energy performance rating of “E”.

This means landlords must make improvements to homes, upgrading insulation or heating systems for example, which should make them cheaper to heat.

The regulations will come into force for new lets and renewals of tenancies with effect from 1st April 2018 and for all existing tenancies on 1st April 2020.

The Government has announced it will be unlawful to rent out a property which breaches this minimum rating, meaning properties which fall in the less efficient “F” or “G” categories will no longer be acceptable.

A civil penalty of up to £4,000 will be imposed for landlords who let homes that fall below the minimum standard.

Which properties are affected by the changes?

The new regulations apply to private, domestic rented properties in England and Wales which are let under an assured tenancy or a shorthold tenancy. The tenancy should be regulated under the Rent Acts including assured agricultural occupancy, protected and statutory tenancies under the Rent Act 1976.

The properties affected are any domestic, privately rented properties which are required by law to have an EPC or are contained within a larger unit which is required to have one. This includes houses, flats and self-contained units but isn’t applicable to bedsits. The EPC cannot be more than 10 years old.

Which properties are excluded?

Protected buildings and structures (such as those with listed status or restricted environmental regulations) are exempt if the measures needed to improve energy efficiency will alter the character or appearance of the building. In addition, temporary structures with intended use times of 2 years or less, residences used for less than 4 months of a year and buildings with floor area of less than 50 square metres are also exempt.

 Are there rules about how energy efficiency is improved?

There are no regulations relating to how the energy efficiency rating E is achieved so it is up to the individual landlord what work is carried out on the property. The regulations stipulate that only cost-effective improvements should be made and it’s possible that a landlord could be exempt in some cases. For example, if a landlord can prove that they’ve taken all possible cost-effective measures to make improvements but the rating still remains below E. Or, in some cases, the landlord may be unable to obtain consent from the occupying tenant.

Are there exemptions?

Any properties which are exempt from the new regulations need to be registered on the PRS Exemptions Register. This registration has been open since October 2017. Failure to register will be seen as non-compliance with the regulations. Once a property is assessed and declared exempt this remains valid for 5 years. After that period it would need to be reassessed.

How the regulations are enforced and what are the penalties?

The regulations will be enforced by the local authority who will serve landlords with compliance notices to confirm properties either meet the required standards or have been declared as exempt. If they find a landlord has not complied with either they are able to issue a penalty fine which, cumulatively, could reach up to £5,000. A landlord can request a review of a penalty notice followed by an appeals process if they are still not satisfied with the local authority’s decision.

There are several improvements you can make to a property which will improve the energy efficient rating and many are very simple to carry to out. You could improve the energy efficiency of your property significantly by:

  • Replacing a non-condensing boiler with a new condensing, A rated boiler with over 90% energy efficiency.
  • Installing or improving insulation in walls, roof, and loft spaces, pipework etc. to prevent heat loss. You may even be able to qualify for a free insulation grant to help with the cost.
  • Installing solar panels and a solar energy storage system to reduce the property’s energy dependence on the National Grid
  • Installing double glazed windows to reduce the amount of heat escaping through poorly fitted frames or basic single glazing.

If you wish to discuss any of this further then please contact us 0116 2423400

Hollie Crown, Office Manager

Autumn Budget 2017

Yesterday saw a budget that focused, as expected, on housing and a stormy economic forecast. Our full summary is available on our website, but the key tax developments are summarised below.

Personal Tax Rates and Allowances

The personal allowance is currently £11,500 and will increase to £11,850 in April 2018. The higher rate threshold similarly increases from £45,000 to £46,350. Phillip Hammond reaffirmed his commitment to raise these thresholds to £12,500 and £50,000 respectively by 2020.

 National Insurance for the self-employed

 After the embarrassment of Mr Hammond’s U-turn earlier this year after attempting to abolish Class 2 National Insurance and increase Class 4, it was announced that in order to give sufficient time for a more popular proposal to be devised, there will be a delay of one year before any reform.

Capital Gains Tax

 After unfavourable consultation, the proposal for a 30-day window between Capital Gains arising and the tax being due has been deferred until April 2020.

 Research and Development

 Large companies claiming relief for research and development under the RDEC scheme will see their credit increase from 11% to 12% as part of plans to help the economy grow after Brexit.

Corporation Tax

Indexation Allowance – a long standing relief for companies making capital gains will be frozen from 01 January 2018. This allowance protected companies from gains that arise as a result of inflation and as a result no relief will be available for inflation accruing after this date. This move is perhaps unsurprising, with property investors more often operating through a limited company as a result of this allowance and the increased taxation of landlords in recent budgets.

 Stamp Duty

 With the youth vote rocketing in the last election, the government has decided to act further on the concerns that first time buyers are struggling to get on to the property ladder. Stamp duty will be abolished immediately for first time buyers purchasing properties worth up to £300,000. Those buying their first houses in expensive areas such as London will pay no stamp duty on the first £300,000 of properties costing up to £500,000.

 Value Added Tax (VAT)

 The VAT registration threshold will remain at £85,000 p/a for two years from April 2018. This will come as a relief for many, as some predicted this could be lowered to nearer the EU average of £25,000.

Making Tax Digital (MTD)

 As announced in July, no business will be mandated to use MTD until April 2019, and then only for VAT obligations. The scope of MTD will not be widened until April 2020 at the earliest.

The above are only the areas that I feel will be relevant to the majority of our clients, other areas and greater detail can be found on our website, click here. 

Please contact us on 0116 242 3400 if you have a specific query.

Matt Smith.

Have you become a landlord?

You can become a landlord for many different reasons; you might not even think of yourself as one. This could be because you’ve:

  • inherited a property
  • rented out a flat to cover your mortgage payments
  • moved in with someone and need to rent out your house.

If you follow this link http://bit.ly/2w4rf17 it takes to the gov.uk web page for Guidance on HMRC’s Let Property Campaign.

On the page there are examples of the most common tax errors people make when renting out their property and are all part of the Let Property Campaign which aims to help landlords bring their tax affairs back in to order. These include:

  1. Moving in with a partner and renting your property.
  2. Inheriting a property.
  3. Property bought as an investment.
  4. Relocation
  5. Divorce
  6. Moving in to a Care Home.
  7. Jointly owned investment property.
  8. Property bought for a family member at university.
  9. Armed Forces.
  10. Tied accommodation.

If any of the above apply to you, or if you are unsure whether your circumstances are covered, you can contact HM Revenue and Customs direct or you may wish to discuss matters with us first. Please call us on 0116 2423400

Linda Plumb, Credit Control

RESTRICTION ON INTEREST RELIEF ON RESIDENTIAL BUY TO LET PROPERTIES

As many owners of rental properties will be aware, from 6 April 2017 there is a restriction on the tax relief available on mortgage interest on residential Buy to Let (BTL) loans. The restriction, which is being phased in over 4 tax years to 2020/21, will eventually limit tax relief to the basic rate of income tax, currently 20%.

For a 40% tax payer (usually taxable income over £44,000) the staggering of the restriction means that over the next 4 years, tax relief on interest will be reduced by 1/8 each year to 50% of its 2016/17 level by 2020/21. For example, a 40% taxpayer paying £2,000 in BTL mortgage interest each year will currently be entitled to £800 of tax relief; this will reduce by £100 a year to £400 by 2020/21. As income is assessed before interest is deducted, more people will find themselves in the 40% tax bracket.

This, combined with the extra 3% Stamp Duty applying to additional residential homes being purchased, amounts to a significant increase in the tax burden relating to owning residential rental property.

The tax relief restriction does not apply to companies letting residential properties, so we are experiencing an increase in requests by individuals and couples wishing to set up a limited company to acquire properties they would like to buy for rental purposes. However, the increase in Stamp Duty still applies and commercial BTL mortgage rates tend to be higher than personal rates.

In some very restricted circumstances, it is possible to transfer existing rental properties into a limited company, taking advantage of incorporation relief to hold over Capital Gains, and in even more limited cases, to avoid payment of Stamp Duty on such a transfer.

If you would like to know more, please email peter.morris@torrwaterfield.co.uk or call 0116 2423400

What Changes in April 2016? (Part 3 – Property Tax)

The last of our blogs in this series is upon us! Let’s take a look at the changes in the area of property tax, starting with a little gem that was announced in December 2015’s Autumn Statement….

From 1 April 2016, there will be a 3% higher rate of Stamp Duty Land Tax (SDLT) on the purchase of additional residential property (i.e. the rates charged will be 3% above the usual rates).  This will apply to second homes as well as buy-to-let properties, but will also affect those who are moving home where there is a time difference between buying their new house and selling the old one – the higher rate SDLT will be payable on the purchase of the new house, but will be refunded if the old one is sold within 18 months.

Tax planning tip: If you are looking to buy a second home or buy-to-let property, complete the transaction before 1 April 2016 to avoid the additional tax.

From 6 April 2016, Wear and Tear Allowance (which was only available to landlords of furnished properties) will be scrapped and replaced with a new relief which allows all residential landlords to deduct the actual cost of replacing furnishings.  The key word here is “replace” – no relief is available for the initial purchase.

Tax planning tip: If your rental property needs any of the furnishings replacing, delay the expenditure until 6 April 2016 or later – that way you will get the tax relief.

You’ve probably heard about the new restrictions being brought in for mortgage interest relief on buy-to-let residential properties – this doesn’t come in until April 2017, so we will blog about this specifically at a later date.  For a bit more detail on it now, check out our Spring 2016 News Focus at http://www.torrwaterfield.co.uk/news/newsletters/spring-2016.

Katie Kettle, Technical Manager Katie Kettle Colour