With an increasing number of people entering the buy-to-let market in the UK, there are a number of rules and regulations to be aware of. And as there have been recent changes in the private rented sector, landlords need to ensure they remain up-to-date on the latest changes.
Here are the top five things new landlords must know about legislation within the private rented sector.
1. Tax changes
There have been a number of tax changes to the letting market in recent years. Landlords need to stay on top of these to ensure they are factoring these costs into their property investments.
Stamp duty surcharge for overseas buyers
On 1 April 2021, a new 2% stamp duty surcharge came into effect for overseas buyers. This is for investors who aren’t residents of the UK. The surcharge is on top of the regular stamp duty rates and the 3% surcharge on purchases of second homes or buy-to-let properties.
Mortgage interest tax relief
Previously, private landlords have been able to deduct mortgage payments from their rental income to reduce their tax bill. Instead of mortgage interest tax relief, landlords now receive a tax-credit based on 20% of the mortgage interest payments. For some landlords, this means they will owe more in tax.
However, if you purchase a property through a limited company there are many tax efficiencies you can take advantage of. But there are extra administrative obligations that come with this, and mortgage interest rates for limited companies are typically higher. Landlords should seek professional advice to help determine whether it’s best for you to invest privately or through a limited company.
Making Tax Digital
The government’s initiative Making Tax Digital (MTD) is rolling out changes for companies, self-employed businesses and landlords. Landlords with annual property income above £10,000 will need to keep digital records through an approved software and submit returns from their next accounting period starting on or after 6 April 2023.
If you have a VAT-registered property investment company with a taxable turnover above the VAT threshold of £85,000, you need to be following MTD rules already. VAT-registered businesses with a taxable turnover below the threshold will have to start following the rules for the first return starting on or after April 2022.
If you need to hire an accountant or purchase an accounting software system, these costs also need to be factored into your property investment business.
2. Safety guidelines
A landlord is responsible for making sure their property is safe for tenants. There must be smoke alarms installed on all floors. Carbon monoxide detectors should also be installed in any room where solid fuels are burnt. These should be tested and ensured they are in working order on the first day of any tenancy.
All private landlords are also legally required to get all gas appliances checked by a registered engineer and get a Gas Safety Certificate. This should be renewed every 12 months. Additionally, landlords need to have a qualified electrician inspect and test all electrical fixtures and fittings. Since 1 April 2021, all privately rented properties need an Electrical Installation Safety Report undertaken. This should then be done at least every five years.
3. Minimum EPC rating
All privately rental properties need to have an Energy Performance Certificate (EPC) rating of at least an E, unless the property qualifies for an exemption. And landlords must provide this certificate to tenants. There also are government proposals that the EPC rating minimum requirement could be further raised to C from April 2025.
New EPC rules make new-build property investments especially enticing. Most new-builds have an A or B energy performance rating. And as the environment is at the forefront of many people’s minds, many tenants are prioritising properties that are more energy efficient.
4. Right to Rent checks
Tenant referencing is an important part of finding a suitable tenant to rent your property out to. It allows a landlord or letting agent to find out information about a prospective tenant in order to be able to make an informed decision on whether to allow the tenant to rent the property. This includes credit checks, references from previous landlords and investigating address history and authenticity of bank details.
Landlords are also required to undertake Right to Rent checks on a tenant before the start of a tenancy. This involves checking they have the right to live here. The government provides information on how to undertake a Right to Rent check. You’ll need to ask the prospective tenant for original documents that prove they are allowed to live here.
Then, you’ll need to look at these documents and check that they’re genuine and belong to them. This is supposed to be done in person. However, there have been temporary changes due to the COVID-19 pandemic. In England, you can get a fine or be sent to prison for allowing someone to rent your property who is not allowed to live in England.
5. Tenancy deposit protection
It is also a legal requirement for landlords to put tenancy deposits into a government-approved tenancy deposit scheme. A deposit is a sum of money that can be requested as a security against damage to the property or non-payment of rent. This is paid by the tenant before moving into the property.
Landlords must put the deposit into an approved scheme within 30 days of receiving it. The Deposit Protection Certificate and completed Prescribed Information needs to be provided to the tenant.
At the end of the tenancy, the tenant will then get all or a portion of their deposit back depending on if the tenant meets the terms of the agreement, doesn’t damage the property and pays the rent and bills. The landlord must return the deposit within 10 days of both agreeing how much the tenant will get back.
If there is a dispute, the deposit will be protected by the deposit protection scheme until the issue is sorted. In England and Wales, authorised schemes include MyDeposits, Tenancy Deposit Scheme and Deposit Protection Service. These regulations show how professional the UK private rented sector is, which provides benefits for both landlords and tenants.
Benefits of using a property management company
A property management company can help landlords keep up with the changing requirements of the private rented sector. The company can also handle certain tasks and activities, freeing up your time. They can ensure you are up-to-date on the latest regulations and can provide peace of mind when handling issues with tenants.
Chestertons PRIME Management team provides a range of letting and property management services, including securing tenants, collecting rent payments, refurbishments and vacancy management, and can provide advice to landlords.
This allows landlords to have a more hands-off investment. And this can be particularly helpful for international investors who are located overseas from their property investment.