Landlords will be well aware of many of the new rules and regulations that were brought in this year, but here is a quick overview before the end of the year to ensure that you are up to date.
New energy efficiency rules
Since April 2018, landlords of privately rented domestic and non-domestic property in England or Wales must ensure that their properties reach at least an Energy Performance Certificate (EPC) rating of E before granting a new tenancy to new or existing tenants. Most lenders now require proof of the compliant EPC ratings when investors look to re-mortgage, sell or raise new finance.
Read the Government’s guidance to landlords on complying with the 2018 ‘Minimum Level of Energy Efficiency’ standard (EPC band E).
Mortgage tax relief – came down to 50%
The second phase of the changes to mortgage tax relief came into force. Between 2017 and 2020, the amount of mortgage interest that landlords can deduct from their rental income before calculating their tax liability is being reduced from 100% to none.
In the 2017-18 tax year, landlords could claim 75% of this cost at the higher rate and in 2018-19 it is 50%. See the Government’s guidance on these changes for more details.
New licensing for HMOs
In October changes to rules around Houses under Multiple Occupation (HMO) came into force. The new definition is: any property occupied by five or more people, forming two or more separate households. The only change to the existing definition is that the number of storeys is no longer part of the criteria.
If you already have a license for an HMO under the current “Licensing of Houses in Multiple Occupation (Prescribed Descriptions) (England) Order 2006” definition, the license will continue to be valid until the expiration date (generally five years from date of issue). After expiration you will need to apply for a new license as normal.
If you currently rent out an HMO, which did not previously require a license but now will do, you will need to apply for a license through your local council. You will need to comply with your local council’s HMO licensing standards. This may involve making changes to your property to comply with rules like minimum room sizes or amenity standards (eg number of bathrooms, kitchen facilities).
To help landlords identify what is now considered to be an HMO we developed a decision tree outlining the different elements that make a property an HMO.
Although there were not that many new items of regulation brought in by the Chancellor, there were changes to Capital Gains Tax. The annual exempt amount rises from £11,700 to £12,000 from April 6, 2019. An individual taxpayer will not pay Capital Gains Tax on the first £12,000 of a gain – and the rate remains at 18% for basic rate taxpayers and 28% for those paying higher rate income tax.
Husband and wife landlord teams can sell a buy-to-let home they own together 50/50 and benefit from no Capital Gains Tax on the first £24,000 of a gain, and providing they are basic rate taxpayers, the balance is taxed at 18%.
Landlords Guild has created a fuller summary of this year’s Budget changes.
Last but not least…tougher underwriting rules for portfolio landlords
Now that the PRA considers landlords with four or more properties to be portfolio landlords, many investors need to take into account tougher underwriting rules. If you would like a refresher on what information you now need to provide to lenders, read our blog.
It has been a busy year and with Brexit on the horizon, there are more changes to come, but we are optimistic about 2019 and look forward to what the New Year will bring.