Tax Changes for Landlords
Since the start of the 2017-18 tax year, the new buy-to-let tax system has started to be phased in. Rather than an immediate change, the new rules will be introduced gradually year-by-year until they are fully in place by 2020.
This means that every tax year during the transition period, the percentage of your mortgage interest payments that you can deduct from your rental income will decrease by 25%, and the portion of those interest payments that qualify for the new tax credit will increase by 25%.
Therefore, by 2020, you won’t be able to deduct any of your mortgage interest payment from your rental income before paying tax – instead, the entire sum of your interest payment will then qualify for a 20% tax relief.
This means that a landlord getting £10,000 in rent and paying £9,000 in mortgage interest payments will end up paying tax on the full £10,000 – though the amount will still depend on their tax bracket.
They will then be able to deduct £1,800 from their tax bill due to the 20% tax credit, leaving them with the final overall tax bill on their rental income.
Landlords in higher tax brackets could then end up paying much more tax than before, as they’ll be paying a percentage of the total rental income rather than the rental income minus their yearly mortgage interest payments. And the only tax relief they’ll receive is 20% of their interest payment, instead of the entire amount.
While landlords could find themselves paying more tax on their rental income, there are other changes that could take place because of the new rules:
• A higher tax bracket: the rental income you use for interest payments must now be declared, which means you might find that you move up into a higher tax bracket.
• Negative earnings: some landlords who have smaller profit margins may find that they are in the red after tax – meaning that they could be losing money.
Section 21 Notices
Serving a Section 21 notice is the most common way to end a tenancy. It is simpler than service a section 8 notice as it does not require you to attend a court hearing and you don’t have to give a reason for wanting possession. As long as you give the correct length of notice, meet all the requirements for service and use the correct form then the courts will provide a possession order in the post. This is known as accelerated possession.
Until October 1st 2015 the Section 21 notices came in a variety of different formats and there was no time limit on using the Section 21 notice to apply to court after it has been served. This has now changed with the introduction of a prescribed form that must be used in England along with a number of additional requirements that must be met before the notice can be served validly:
1: The tenancy must have been longer than 4 months – if your tenancy began on the 14th January for example, you could not service notice until the 14th May as this is the first day of the 5th month.
2: A section 21 notice must give the tenants at least 2 months’ notice from the date of service, preferably + 3 days for safety. For example a section 21 notice service on the 14th May would ask for possession on the 17th July. This notice period may be different if you take rent in quarterly, 6 monthly or yearly instalments.
3: You may not serve a valid section 21 notice if you have received an improvement notice or emergency remedial action notice from your local authority in the last 6 months and it was not successfully appealed.
4. Please note, now that you cannot serve notice in the first four months of a tenancy, it is therefore impossible to give a 6 month assured shorthold tenancy and serve notice to expire on the last day of the tenancy.
The following must be provided to the tenancy before a Section 21 is considered valid:
A: A valid Gas Safety Certificate prior to the tenancy starting.
B: An EPC must be served prior to the tenancy starting.
C: The most recent version of “How to rent: A checklist for renting in England” must be provided at the start of the tenancy. An updated version needs to be supplied at the start of a replacement tenancy.
D: Any deposit needs to be protected within 30 days of receipt with the prescribed information provided to the tenancy and anyone who has paid towards the deposit once the deposit has been protected.
E: If a licence is required then it should be in place before the Section 21 is served or an application must have been made.
HMO (Houses of Multiple Occupation)
There are some changes with regards to what properties require an HMO. Previously an HMO licence was required for any property that had 5 or more unrelated tenants and had three or more storeys. This has now been changed and any property, over any number of floors that has 5 or more unrelated people sharing will need an HMO licence.
Brighton and Hove are introducing a new licence that will take effect from the 1st February 2019. ALL properties that fall within one of the following wards will require a licence:
Brunswick & Adelaide
Hollingdean & Stanmer
St Peter’s & North Lane
Hanover & Elm Grove
Moulescoomb & Bevendean
Landlords will be charged for this licence (£460.00) and need to comply by the licencing rules including having an up to date electrical certificate carried out by a qualified electrician every 5 years. The requirements are all listed on the Brighton & Hove website – www.brighton-hove.gov.uk.
Gas Safety Checks
Every property must have a valid gas safety certificate in order for a tenant to move. You may now carry out a Gas Safety two months’ prior to the existing one expiring. The expiry date of the new one will be a year from the expiry date of the existing, so you will not be penalised for doing this early.
Lettings Fee Ban
This is still in the air and the rules are ever changing but keep an eye out for a new post when we have more concrete information.
This is the information that must be provided to the tenant at the beginning of a tenancy. Should you not provide this then you will not be able to serve a Section 21 notice to gain possession of the property:
• Energy Performance Certificate
• How to Rent Booklet
• Gas Safety certificate (if required)
• Terms & conditions relating to the deposit protection
Right to Rent
Every tenant must show the necessary ID to confirm they are legally entitled to rent a property in the UK. Please see below great link to all the ID that can be provided as evidence:
If they have a current visa then you must diarise a follow up for when this expires to either gain a new valid visa or, if they do not provide one, report them to the necessary department.
Smoke Alarm & Carbon Monoxide Alarms
All rental properties must have at least one smoke alarm on every floor and any property with a solid fuel appliance, ie a log burner or an open fire, must have a Carbon Monoxide alarm.
These should be tested on the first day of the tenancy. Tenants should be advised that they need to test the alarms regularly and let you know as soon as possible if they are not working.
Energy Performance Certificates
If you are advertising a property to let/sell, by UK law you must have an EPC from an accredited assessor.
EPC ratings must be displayed alongside adverts for properties.
If you started a new tenancy or renew one from the 1st October 2015, you cannot serve a Section 21 notice without giving your tenant an EPC beforehand.
EPC ratings have to be a minimum of E by 2018.
Under the Housing and Planning Act 2006 it has been agreed to create a database for all rouge landlords. This will be used by the council to keep a close eye on all the rogue landlords and to help make sure properties meet regulations and constantly maintained. See below link to the full information.
The Data Protection Act 2018 controls how your personal information is used by organisations, businesses or the government.
The Data Protection Act 2018 is the UK’s implementation of the General Data Protection Regulation (GDPR).
Everyone responsible for using personal data has to follow strict rules called ‘data protection principles’. They must make sure the information is:
- used fairly, lawfully and transparently
- used for specified, explicit purposes
- used in a way that is adequate, relevant and limited to only what is necessary
- accurate and, where necessary, kept up to date
- kept for no longer than is necessary
- handled in a way that ensures appropriate security, including protection against unlawful or unauthorised processing, access, loss, destruction or damage
There is stronger legal protection for more sensitive information, such as:
- ethnic background
- political opinions
- religious beliefs
- trade union membership
- biometrics (where used for identification)
- sex life or orientation
There are separate safeguards for personal data relating to criminal convictions and offences.
Under the Data Protection Act 2018, you have the right to find out what information the government and other organisations store about you. These include the right to:
- be informed about how your data is being used
- access personal data
- have incorrect data updated
- have data erased
- stop or restrict the processing of your data
- data portability (allowing you to get and reuse your data for different services)
- object to how your data is processed in certain circumstances
You also have rights when an organisation is using your personal data for:
- automated decision-making processes (without human involvement)
- profiling, for example to predict your behaviour or interests
We feel that due to fact that this is an ever-changing industry, it is more important than ever to secure a letting agent who is up to date with the legislation.
If you are unsure about any of the above then please don’t hesitate to give Stuart & Partners a call.