We wanted to take this opportunity to discuss a number of changes to the Private Rented Sector being introduced by HMRC, central government and local government that will have a massive impact on the industry in general. Some of these changes to legislation have already been introduced, while other changes are in the pipeline. We have already written to each of our landlords to discuss these issues but wanted to throw them open to our wider audience in the form of a blog.

Stamp Duty charges

On 1st April 2016, the government raised stamp duty charges on buy-to-let and second home property purchases. The new rates are as follows:

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%
over £1.5m 12% 15%
Source: HMRC and Gov.uk

The new stamp duty charges will only affect landlords when buying another investment property; transactions under £40,000 are not subject to the higher rates.

Tax changes at a glance

You may also already be aware that as of 1st April 2017, the tax relief that landlords of residential properties get for finance costs (in other words, your buy-to-let mortgage or other finance costs) will be restricted to the basic rate of income tax, i.e. 20%. Bearing this in mind, it would be prudent to check with your accountant how, or indeed even if, you will be affected by Section 24.

The changes apply to the tax relief that landlords are currently able to claim on mortgage interest payments that they make on their rented properties. Landlords are currently able to deduct the full cost of mortgage interest payments from rental income before paying income tax but Section 24 of last year’s Finance (No. 2) Act will change this gradually over the period from April 2017 to 2020.

The changes are fairly complex but, in effect, they will mean that:

  • For income tax purposes, all rental income will be considered as personal income, without deducting mortgage interest costs first
  • The amount of income tax relief that higher rate tax paying landlords receive on their mortgage will be effectively reduced from 40% to 20%, and for top rate payers from 45% to 20%
  • Existing landlords with a mortgage who are on the higher or top rate of income tax will see an increase in their tax bill. Landlords who are currently on the basic rate will be affected in one of two ways:
    • If their gross annual rental income plus other income is below the higher rate income tax band (£45,000 from next year) then their tax liability will remain unchanged. The government estimate this will apply to 82% of landlords.
    • But some landlords who currently pay the lower rate may be pushed up into the higher rate band. This will apply to those whose gross rental income plus other income is above £45,000, not just those whose net rental income (once finance costs have been deducted) are above that level.

These new proposals have incensed landlords throughout the UK and indeed a legal case was presented to the High Court citing discrimination against private landlords caused by an unfair and unjust tax. The court overruled the case and found in favour of the government. There are still a number of lobbying groups protesting section 24 but it is still going ahead!

The government then want to take this even further in April 2020 by not allowing landlords to claim any deductions against their rental income. This would, in effect, mean that private landlords (not limited property companies owning a portfolio of properties in the limited company name) will run the only business in the UK that is not allowed to offset any expenditure against income. We will see how this develops but have a very strong feeling that yet again it will happen.

Letting agent fees to tenants

We then had the autumn statement of 2016 from Philip Hammond with the headline-grabbing news that he proposes to ban all letting agent fees to tenants and that any fees should be passed onto the landlord! This came out of the blue and was a hammer blow to many letting agents. At present, our regulatory industry boards are holding meetings with the government in an attempt to make them see sense.

At Able Property Trust, we have been fighting for many years now for a fair fee policy and for fees to tenants to be capped – these suggestions have fallen on deaf ears. The current proposal seems very unfair to agents like ourselves whose fees are transparent, low (for the amount of work involved in getting references, credit checks and drawing up a contract that has to be fully compliant with ever-changing legislation) and our fair fees are advertised fully on our website and Rightmove prior to a tenant getting in touch with our company. It is very interesting to note that in the 20 years we have been in the industry, we have never had a complaint about our service or fees from any tenant! There is a problem with letting agents’ fees nationwide that needs addressing, but a complete blanket ban on all agents (regulated or not regulated) seems unjust, to say the least.

We have no intention of passing extra costs onto our landlords who are already being burdened by new legislation. As private portfolio landlords ourselves, we understand the extra costs already being put onto landlords.

The ban is not due to take effect until the end of this year or the beginning part of next year so we will keep you updated.


Selective Licensing Scheme

The last (and other joyous piece of news!) is that Nottingham City Council is proposing that as of February 2018 they want to enforce selective licensing at a cost of £605.00 per rented property that falls within the Nottingham City Council region. In other words, if you own a property that pays its council tax to Nottingham City Council, this will affect you. The proposed licence will be for all private rented houses and is separate from the current HMO licensing and additional HMO licensing. The Council is looking at a revenue of approximately £175,000,000.00 in year one and are talking about employing 75 new licence officer to oversee the new scheme that will affect around 30,000 rented properties in Nottingham – we have heard that they have already started to recruit new employees, so again we think this will be a reality and not just something the Council are thinking about.

We are hoping to be present at a meeting with senior councillors to again try to make them see sense about this. It will affect investment in Nottingham dramatically as other nearby cities have no such proposals. We will also be asking the question as to why such a high fee is going to be charged to Nottingham landlords as the current fees charged by other authorities around the UK (and there are not many doing it at present) are much lower. The fee they are suggesting is completely disproportionate to the work the council will actually have to do.

Again, we will keep you updated on our progress, but do not be surprised if this does come into force. We are not aware of any other local authorities in Nottinghamshire planning to do this at present but will keep you posted. If the council does implement the Selective Licensing Scheme, we are fully geared up to help make your property compliant.

The Council is currently running a public consultation about the Selective Licensing proposal – you can have your say at http://www.nottinghamcity.gov.uk/housing/private-sector-housing/selective-licensing/


Turbulent times for the Private Rented Sector

All in all, 2017 and 2018 are set to be hard times for property owners and yet property is still regarded as one of the best investments on the market at the moment – maybe this is why we are being singled out and targeted.

We are trying to be upbeat about all these new issues and, having been in business for 20 years now and with many contacts in the industry and with the support of our clients, we feel we are more than ready for the hard times ahead. We trust that you feel the same way and are ready for whatever is thrown at us next. Working together is the best way forward.

On a more positive note, it is worth noting that the Irish government brought a large number of these draconian legislative measures into their housing law in 2009 and they have seen the devastation the laws caused the private rented sector. In 2016, they backtracked on the laws imposed on tax to landlords and have already warned our government that the legislation just did not work. It caused many more problems than it solved. Let us hope that our government takes heed and even if it is the plan now, sense will be seen and it will be reversed.


Here for landlords and tenants

If you have any questions or concerns on items we have highlighted above, please do get in touch we are always here to help and do remember to speak with your accountant so you are getting the best tax advice possible.

We also want to let you know that as a company we are here to support you fully as a landlord. We, of course, do property management and offer a tenant find-only service and we ensure that your property fully complies with the latest and most up-to-date legislation. We are fully geared up to help apply for and comply with any new licensing schemes that may take effect and we also deal in property sales at very competitive rates. As we offer any service you may require that is property related, we feel that we can help in every way possible when it comes to you deciding the best way forward with your property or your property portfolio.

I know 2017 is well underway already but here’s wishing you all a prosperous year – we will get there! After all, things can only get better.