The start of April hailed "Axe the Tenant Tax Awareness Week" but sadly it’s probably not going to make much difference to the fact that from 6th April 2017, all landlords have to do their accounts in a very different way. For some, especially higher rate tax payers, this is likely to result in substantially higher tax bills than seen in previous years.
As a landlord, no matter whether you have one property or a large portfolio, it’s important to keep on top of all the paperwork associated with owning buy to lets. Here are ten key pieces of documentation you should have up to date and to hand:
As the weather worsens after the summer (or a bit before!), the risk of damage to property increases. Wind can blow trees and debris onto the building, lift roof tiles and rip off TV aerials, satellite dishes and other loose fittings.
I thought that a reduction in interest rates was bound to happen last month and then, having heard some economists suggest that reducing interest rates might not do much for the economy, I thought they’d be on hold this month. Clearly I’m not very good at financial forecasts, as here we are now in August with a fall of 0.25%!
Although proposals were announced by the Government back in April, letting agent regulation has still not been introduced in England. As it stands, while agents have to be registered with a redress scheme and protect all deposits they hold, there’s no requirement for them to undergo mandatory training or work to a specific code of practice. The three key things the Government has proposed introducing are:
Although letting to students used to be considered the bottom of the buy to let market, it’s a very different proposition today. That’s because three key shifts have taken place in the market over the last decade: increased health and safety legislation for all rented properties, the expectation of a better standard of living from this generation of students and the growth of institutional investment.
For many years, it didn’t make a huge amount of difference whether people had an investment plan in place before they bought a property. Until 2004 for some and for others up to the credit crunch, average prices had enjoyed a rapid journey upwards, giving virtually everyone who owned property an excellent return. The level of rental income was not overly important because the capital gain was so good.
2016 may well go down as the year when political decisions have had the most influence on the ups and downs of the property market.
Since the Housing Act 2004 came into force in 2006, new rules and regulations have flooded into the lettings industry on a regular basis. In 2018 alone, we have seen four new pieces of lettings legislation introduced in England:
Never a day goes by when we don’t hear some news about property prices. So far this year I’ve seen headlines suggesting property prices have achieved ‘record highs’, others saying the ‘property bubble has burst’, while our previous chancellor claimed house prices could fall by 18% if we voted for Brexit.
As a homeowner, you may not have paid much attention to the energy efficiency rating of the property when you bought it; if you’ve lived in your current home for more than ten years and aren’t planning to move any time soon, you may not even have an EPC.
At the start of 2017, the National Association of Professional Inspectors and Testers (NAPIT) began giving presentations to landlords around the UK, in an effort to raise awareness of the value of having their properties regularly inspected by a professional electrician. NAPIT’s business relationship director, Ian Halton, says: “It’s become a mission of ours to make as many landlords as we can aware of the potential danger they could be putting their tenants in if they don’t keep on top of the electrical safety of their property.” To date, more than 3,500 landlords have received NAPIT’s advice.
Although I say ‘summer’, that’s more of a reference to the official title for the time of year, as the absence of a hot climate means many of us have still had to have the heating on low apart from the odd burst of natural heat!
It seems that every year at the moment, landlord taxes and costs are on the rise. As such, it’s absolutely vital that you:
So, with less than three months to go until the end of the current tax year, here’s a round-up of the key financial costs and deductions that landlords need to consider for 2018/19, as well as the changes that will apply for the next tax year, beginning on 6th April 2019.
Now that the Tenant Fees Bill 2017-19 has reached the stage of a final reading in the House of Lords, we should expect a ban on tenant fees to come into force in England soon. And when agents and landlords are unable to continue to charge tenants for the initial referencing and administration of a let, this is money self-managing agents won’t be able to secure and some agents may look to increase management charges. Check with your agent to find out if their prices will remain the same or how much they will increase, do remember though, their charges are tax deductible.
As efforts to raise the standard and condition of rented properties continue, landlords are naturally having to spend more each year on making sure they remain legally compliant. If you are an HMO landlord, your costs may have already increased this financial year, when mandatory licensing changes came into effect in October for properties housing five or more people, forming more than one household, regardless of the number of storeys.
For 2019, the Homes (Fitness for Human Habitation) Act 2018 comes into force on 20th March. While there are no specific immediate costs to landlords, the Act does mean new terms in tenancy agreements from this date will state that the property must be fit for human habitation at the start of any lease and will remain so throughout the tenancy.
The other thing that is likely to come into force this year is mandatory electrical checks every five years. While many landlords already do this as a matter of course, if you haven’t had the electrical system in your property checked in the last five years, it is worth budgeting for an electrician to carry out an inspection as soon as possible, so you are aware of any works required to continue to let the property legally.
Remember that quite a lot of the general costs you’re likely to incur in the course of being a landlord should be tax-deductible. You will need to check with a tax specialist, but the list is likely to include:
For 2018/19, the personal allowance is £11,850 - so you will only pay tax on earnings above that threshold – and it is rising to £12,500 for 2019/20. However, this allowance does go down by £1 for every £2 of income you earn over £100,000, so if your income is above £123,700 for this year’s return, you won’t get any personal allowance at all.
As announced in the 2018 Autumn Budget, the higher-rate threshold is rising again, from £46,350 for this tax year, to £50,000 for 2019/20, above which, income will be taxed at 40%. The 45% tax threshold remains unchanged, applying to earnings over £150,000.
For 2018/19, only 50% of the mortgage interest amount can be deducted from your rental income, with the remaining 50% subject to tax relief at the basic rate of 20%. 2019/20 sees the third phase take effect, when only 25% can be deducted as an allowable expense. Then, from April 2020, the whole amount of mortgage interest will simply be subject to basic-rate relief at 20%.
While basic-rate tax payers are unlikely to notice any difference to their bottom line, unless this change pushes you into a higher tax bracket, if you’re in the 40% or 45% band and have a high level of borrowing, you should already be budgeting and planning for the impact on your profits and tax bill over the next couple of years.
If you sell an investment property, you are liable to pay tax on the increase in value since it was purchased, but you do get an exemption amount, a similar principle to the personal allowance. For 2018/19 you won’t pay tax on the first £11,700, which is rising to £12,000 for 2019/20. Above that, CGT is payable at 18% in the standard tax band and 28% in the higher-rate band.
You should be able to deduct certain expenses from your gains, including:
And there may be more you can do to reduce your liability, so do speak to a property tax specialist to make sure you’re taking advantage of all the allowable deductions.
|For your 2018/19 return:|
|31st January 2019||1st payment on account for 2018/19|
|5th April 2019||End of 2018/19 tax year|
|6th April 2019||Start of 2019/20 tax year|
|31st July 2019||2nd payment on account for 2018/19|
|For your 2019/20 return:|
|5th October 2019||Register online for Self Assessment, if you haven’t already|
|31st October 2019||Paper tax return filing|
|31st January 2020||Online tax return filing & payment of any tax owed for 2018/19|
This information has been provided by our partner Mortgage Advice Bureau. For more information relating to Mortgages or for Mortgage Advice please visitMortgage Advice Bureau.
There are currently nearly 150 ‘Statutory Provisions’ that apply to lettings and the benefit of much of the legislation – particularly the laws that have come into force since 2006 – is that properties have become safer for tenants. Landlords now have a high degree of responsibility for the health and safety of their tenants, from removing potential hazards and installing fire safety measures to ensuring the fabric of the property itself is maintained to a good standard.
While the quality of landlords and their understanding of the Buy-to-Let market has undoubtedly improved in recent years, there are still some fundamental mistakes that are made - both by those who are new to the business and by landlords who would consider themselves experienced. Here are five of the most common:
Will the new government White Paper ‘Fixing our broken housing market’ impact on buy to let?
A few weeks ago, the government launched its new housing strategy for England. The title isn’t particularly cheery and I don’t think it actually reflects the true nature of our housing market.
This month the UK Government is continuing its attempt to agree it’s proposed Housing and Planning Bill. Documents published at the end of April showed that after a third reading, the House of Lords rejected or requested amendments to 21 points in the Conservatives Bill. It is these points that will be discussed and debated in the House of Commons this month.
The problem with changing government policy is that no-one is ever quite sure how people will react. This has certainly been the case with the new higher stamp duty charge for those who complete on a property that is not their primary residence – especially impacting buy-to-let investors.