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The 9 Financial Changes that Landlords Must Prepare for in 2018
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
We’re now officially settled into 2018, which means that those renting out property will be thinking about which tax and regulatory changes will hit them next. We have nine financial changes that landlords must prepare for this year:
- Improve energy efficiency
From 1st April 2018, all new tenancies must meet the Government’s Minimum Energy Efficiency Standards (MEES), which will make it illegal to grant a new lease (even to existing tenants) on properties with an Energy Performance Certificate (EPC) rating of F or G.
The MEES will apply to all tenancies from April 2020, so it is essential that you focus on making sure that your properties have an EPC rating of E or above. If you plan to grant a new lease on your property from April this year, the property must meet the MEES on the first day of that month.
- Prepare for longer tenancies
In the Autumn Budget back in November, Chancellor Philip Hammond announced plans for a consultation on how to incentivise landlords to offer longer-term tenancies.
Some industry experts are calling for landlords to receive tax relief if they offer longer-term tenancies to renters. David Cox, the Chief Executive of ARLA Propertymark (the Association of Residential Letting Agents), believes that combining tax relief with a new housing court to speed up the eviction process will help to encourage landlords to offer longer-term tenancies.
We will keep you up to date with any developments on the consultation.
- Rent-a-room changes
The 9 Financial Changes that Landlords Must Prepare for in 2018
Hammond has also called for evidence to show how rent-a-room tax relief could be better used to target long-term lettings. Currently, homeowners can earn up to £7,500 a year by renting out a room in their home before they have to pay Income Tax on the earnings.
The problem with the scheme is that it was designed to encourage people to let out a room in their home on a long-term basis, but the rise in popularity of short-term lets, due to websites such as Airbnb, has meant that the relief is being used by homeowners looking to make some extra money, rather than offering long-term lettings.
Changes may be brought in to make the rent-a-room scheme more targeted to long-term lettings.
- Rent payments and credit scores
The Government has asked technology firms to create tools that will make it possible to record tenants’ rent payment histories in their credit scores. The Rent Recognition Challenge will run until October 2018.
The idea is that, by including rent payments in tenants’ credit scores, more renters will be able to get mortgage finance, but the measure will also benefit landlords, as they will be able to see whether a prospective tenant has paid their rent on time in the past.
- Using a letting agent
In November last year, the Government published a draft bill, which included a ban on letting agents charging fees to tenants. It is believed that the law changes will come into force this year, but they could cause landlords to stop using their letting agents.
If letting agents are banned from charging fees to tenants, they may choose to pass the costs onto their landlord clients instead. This may cause landlords to drop their letting agents, as their overall costs will be higher.
- Rogue landlord database
A database of rogue landlords and letting agents is expected to go live in April 2018, having been delayed from October 2017. Only local and central Government will have access to the database, and it will include operators with criminal convictions and any landlords or letting agents that have been issued with banning orders for housing offences.
Please note that the Mayor of London has already introduced a similar blacklist for landlords and agents in the capital.
- Additional HMO licensing
The Government is also expected to target rogue landlords running Houses in Multiple Occupation (HMOs) by introducing tougher new rules.
At present, all large HMOs require a license, but this could be expanded to far more properties. The rules look set to remove the minimum three-storey requirement on what qualifies as an HMO.
This could mean that HMOs of five or more individuals, regardless of the number of storeys, will need a license, increasing the number of licensed properties from 60,000 to 175,000.
- Landlord regulation
At the Conservative Party conference last year, the Communities Secretary, Sajid Javid, announced plans to make it a legal requirement for landlords to belong to an ombudsman scheme.
Javid hopes to create a single housing ombudsman that replaces the four current schemes. The plan could be good news for landlords, as it should improve dispute resolution with tenants.
- Further tax relief reduction
This year, the Government’s mortgage interest tax relief restrictions will continue to bite. From April last year, the amount of tax relief that landlords can claim on finance costs (including mortgage interest) is being gradually reduced to the basic rate of Income Tax.
The tapering has already restricted tax relief to 75%, and will fall to 50% in April this year, then 25% in 2019 and 0% in 2020.
We suggest that all landlords take professional financial advice if they are worried about any of these changes. We will keep you up to date with all legal and financial changes in the buy-to-let sector through our handy monthly newsletter. Sign up for FREE here.
