With so many recent changes in the World of Lettings, here’s what you need to know about the important changes that may well affect YOU
SECTION 24 – WHAT DOES THIS MEAN FOR LANDLORDS?
There’s been lots of talk about mortgage interest relief and the changes that are going to be phased in over the next 4 years in relation to Section 24, introduced in April this year. Some Landlords will see a big rise in their tax bill PLUS a big hit to profits. Those in the higher tax rate bracket of 40% will be hit hardest
Section 24 means that you will no longer be able to claim mortgage interest or any other property finance, as tax deductible. Essentially, buy to let finance costs will no longer be accounted for when working out your taxable profits
Will Section 24 actually affect me?
If you have any kind of loan or mortgage interest on your buy to let property, then yes. If it is a large proportion of your costs, you will now start to pay tax on those costs – as well as your profit.
Don’t assume that these changes will not apply to you. I strongly advise that you assess your buy to let finances or contact a Tax Specialist for advice on Section 24. They’ll be able to tell you how much higher your tax bill will be and advise on ways to minimize it where possible.
You might want to think about transferring ownership to your spouse or partner if they are in a lower tax threshold or setting up a Limited Company to own your rental property
Mortgage arrangement fees and broker fees are no longer tax deductible and the Wear & Tear allowance was scrapped in April last year. If you furnish a property, you may now only offset replacement furniture on a like for like basis.
So, Section 24 is to be phased in during April of each forthcoming year until 2021
Phase 1 – Higher rate tax relief can still be claimed on the first 75% of your mortgage interest costs. The remaining 25% will have the basic rate of tax relief applied
Phase 2 – April 2018 – The amount of higher rate tax relief will drop to 50% of your mortgage interest costs, the remaining 50% will have the basic rate of tax relief applied
Phase 3 – April 2019 – Higher rate tax relief will drop again to 25%, the remaining 75% basic rate of tax relief will apply
Phase 4 – April 2020 – You will only be able to claim tax relief at the basic rate level of 20%
From next year, a Landlord can no longer let a property with an EPC rating less than E. If your property has a rating of below E, then you must look at ways of how to increase the rating so that you meet this new piece of legislation. If your property remains below an E rating, you’re running the risk of a fine, AND your property cannot be occupied by Tenants
If you’ve not got your EPC to hand, you can download it by visiting www.epcregister.com and entering your postcode
By talking to an Energy Assessor, you can learn about ways to bring your EPC rating up to the legal requirement
By 2025 the minimum rating will change again to D and by 2030, the minimum rate for letting a property will be C
Annual Electrical Periodic Inspections are set to become a legal requirement in the very near future for every rental property. Periodic Inspections have always been highly recommended – every Landlord has a duty of care to make sure that the electrics are safe but this will soon become mandatory. Records will need to be logged and a copy provided to the Tenant – as we do for Gas Safety Certificates
So, What’s the Good News?
A recent prediction by the Chairman of ARLA, Sally Lawson – by 2050, 50% of property in the UK will be rented.
Its still extremely difficult for the younger generation to get on that first rung of the property ladder. Attitudes have changed massively towards the dream of owning a property. Let’s face it, it will take the early 20’s a good number of years to save for a deposit and they don’t want to live with parents until they’re 30! The only option they have is to rent
High demand and short supply remains in the rental sector and we are regularly seeing multiple applications for one property. As always, rents are on the increase. Well presented properties in the right location will continue to achieve premium rents and long term tenancies