There have been many changes to buy to let rules and regulations over the last decade. We’ve listed the recent changes that all landlords and aspiring landlords should be aware of.
2nd Home Stamp Duty
Over the last few years; several changes have been made to how stamp duty is calculated and who is required to pay stamp duty.
Since April 2016; property buyers purchasing a 2nd home have been required to pay an additional 3% 2nd home stamp duty surcharge.
Higher rates of SDLT on additional residential properties form part of the government’s Five Point Plan for housing, and are part of the government’s commitment to supporting home ownership and first-time buyer
Buy-to-let and second home Stamp Duty tax bands
|Brackets||Standard rate||Buy-to-let/second home rate (April 2016)|
|Up to £125,000||0%||3%|
|£125,001 – £250,000||2%||5%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1.5m||10%||13%|
You will not pay the extra 3% SDLT if the property you’re buying is replacing your main residence and that has already been sold.
If there’s a delay in selling your main residence and it has not been sold on the day you complete your new purchase:
- You will have to pay the higher rate of stamp duty because you own 2 properties
- You may be able to get a refund if you sell your previous main home within 36 months
BTL Tax Relief
Before April 2017, buy to let landlords were able to deduct interest from mortgage payments before they paid tax on their rental incomes.
For example, if you made £10,000 a year in rental income, and your annual mortgage interest payment amounted to £9,000, you could deduct the £9,000 from your rental income. Meaning you would only pay tax on the remaining £1,000 – so if you were in the 20% tax bracket, your tax bill on rental income would have been £200.
A new buy to let system was phased in at the start of the 2017-18 tax year. From April 2020, tax relief for finance costs has been restricted to the basic rate of income tax, currently 20%.
The tax on landlords income is then charged in accordance with your income tax banding (20% for basic rate taxpayers, 40% for a higher rate, and 45% for additional rate).
In layman’s terms, this means that all rental income will be taxed at a landlord’s highest marginal income tax rate. The only concession is the 20% tax credit on mortgage finance costs.
NB. You can minimise the tax you have to pay by deducting certain ‘allowable expenses’ from your taxable rental income.
Some examples of allowable expenses are:
- General maintenance and repair costs
- Water rates, council tax and gas and electricity bills (if paid by you as the landlord)
- Insurance (landlords’ policies for buildings, contents, etc)
- Cost of services, e.g. cleaners, gardeners, ground rent
- Agency and property management fees
Private residency relief
If you once lived in your investment property, you wouldn’t need to pay capital gains tax for the years you lived there when you come to sell.
Under the current rules, you’ll also be exempt from CGT for the final 18 months you owned the property, even if you didn’t live there yourself. But from the 2020-21 tax year, the 18 month period will be cut to nine months.
Capital gains payback date
Currently, you have between 9 and 18 months to pay any capital tax owed when selling a property.
From 6 April 2020, if a UK resident sells a residential property they’ll now have 30 days to tell HMRC and pay any capital gains tax owed.
There are also changes for non-UK residents selling both residential and non-residential property in this country. Non-UK residents will still be required to tell HMRC within 30 days whether there is tax to pay or not and will no longer to be able to defer payment via their Self Assessment return.
NB. Currently, when you sell a property you pay capital gains tax on any profit above £12,000 (there are exceptions)
In the March Budget, Chancellor Rishi Sunak announced the government will slightly increase the capital gains tax (CGT) allowance for individuals to £12,300 and from £6,000 to £6,150 for trustees of settlements from April 06 2020.
The Homes (Fitness for Human Habitation) Act
The Homes (Fitness for Human Habitation) Act was introduced to make sure that rented houses and flats are ‘fit for human habitation’, which means that they are safe, healthy and free from things that could cause serious harm.
As of 20 March 2020, tenants who have a secure or assured tenancy, a statutory tenancy, or a private periodic tenancy, can use the Homes Act, regardless of when their tenancy began.
Under the Act, landlords can be forced to carry out improvement works to their properties and be sued for damages for the entire length of the contract.
Minimum Energy Efficiency Standards
New laws have been introduced regarding energy performance. From 01 April 2020, the Energy Performance Certificate (EPC) of all tenanted properties must be an E or above. Landlords who don’t comply with the regulations may face penalties of up to £5,000. If you’re a landlord purchasing a new build, this is a cost you won’t have to worry about.
Government EPC guidance following Coronavirus.
- Where possible delay the property transaction, and ultimately the EPC assessment until the stay-at-home measures to fight coronavirus are no longer in place.
- If it is not possible to delay the transaction and assessment, and a valid EPC is not available from the EPC Register, an assessment may need to be carried out.
- Where an EPC assessment needs to be carried out, the UK Government’s social distancing measures and guidance for carrying out work in people’s homes must be adhered to.
- EPC assessments can continue where a property is empty.
Tenant fees acts
The ban on letting agency fees doesn’t come into effect for existing tenancies taken out before June 1 2019 until June 1 2020.
Under the new act, tenants and landlords can’t charge you:
- To view a property
- For a reference or credit checks
- Insurance policies
- Guarantor requests
- For costs to cover “admin” this includes charging for referencing, credit checks and guarantors
- Renewal fees for tenancies taken out after June 01 2019
- Charging for professional cleaning, unless the landlord has a valid reason and evidence
- Gardening services
You can read more about the fee ban here.
Electrical and gas safety in privately rented properties
The new Electrical Safety Standards in the Private Rented Sector Regulations 2020 were made on 18 March and will apply to all new tenancies on 1 July 2020 and for existing tenancies on 1 April 2021.
The Electrical Safety Regulations will require landlords to:
- Have the electrical installations in their properties inspected and tested by a person who is qualified and competent, at least every five years;
- Provide a copy of the report (known as the Electrical Safety Condition Report or EICR) to their tenants, and to the local authority if requested.
- If the EICR requires investigative or remedial works, landlords will have to carry this out
*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.