With a raft of new laws introduced in recent years affecting those who own rental properties, Direct Line for Business is urging the UK’s 1.75 million landlords to brush up on their knowledge of the new legislation to avoid being stung by fines.
New research by the landlord insurer reveals the impact recent new legislation, including Stamp Duty Land Tax (SDLT) changes, the abolition of Wear and Tear allowance, tenants’ right to request energy efficiency improvements and mortgage tax relief, has had on Britain’s landlords.
The legislation that has had the biggest financial impact over the past year has undoubtedly been the changes to Stamp Duty Land Tax, which has added a further three per cent on all newly-bought buy-to-let properties.
Based on the average UK house price2 of £219,544, this has meant that any landlord purchasing an additional property will now have to pay Stamp Duty of £8,477, three and a half times more than the £1,891 that would previously have been paid.
Unsurprisingly, landlords in London and the South East have been hit the hardest by these changes, with Stamp Duty on second properties in the capital now standing at an average of £28,704, while Stamp Duty in the South East stands at £15,282.
Changes in Stamp Duty Land Tax, standard vs. buy-to-let fees
Average house price (Dec 16)
Standard Stamp Duty
Stamp Duty on buy-to-let property
£483,803 / £14,190.15 / £28,704.24 / £14,514.09
£316,026 / £5,801.30 / £15,282.08 / £9,480.78
East of England
£281,513 / £4,075.65 / £12,521.04 / £8,445.39
£242,808 / £2,356.16 / £9,640.40 / £7,284.24
£181,328 / £1,126.56 / £6,566.40 / £5,439.84
£176,790 / £1,035.80 / £6,339.50 / £5,303.70
Yorkshire and Humberside
£154,985 / £599.70 / £5,249.25 / £4,649.55
£152,259 / £545.18 / £5,112.95 / £4,567.77
£148,177 / £463.54 / £4,908.85 / £4,445.31
£141,553 / £331.06 / £4,577.65 / £4,246.59
£128,631 / £72.62 / £3,931.55 / £3,858.93
£125,480 / £9.60 / £3,774.00 / £3,764.40
£219,544 / £1,890.88 / £8,477.20 / £6,586.32
Further to this, the changes to Mortgage Interest Tax Relief introduced in April this year restrict relief for finance costs on residential properties to the basic rate of Income Tax, with the level falling by 25 per cent every year between 2017-18 and 2019-20. Direct Line for Business’s analysis3 of average salaries, rent and mortgage repayments across the UK reveals that landlords could be set to pay an extra £156 in tax in the 2017-18 tax year compared to the previous year.
Landlords in the South East are most likely to be affected, with the decrease in tax-free allowance meaning that their income jumps into the upper tax bracket, resulting in additional annual payments of £1,625. London landlords, who already pay an estimated £9,381 in income tax, are set to spend an additional £898 as a result of this change.
Other new laws that have come into play recently include the Houses in Multiple Occupation and Residential Property Licensing Reforms, where landlords can be fined £30,000 if they fail to licence an address; the Right to Rent laws, in which a landlord can be liable of fines up to £3,000 if they do not carry out the required checks and have the right documentation for their tenants; and the letting agent fee ban, which critics believe mean estate agents will simply pass on fees of up to £1,000 to the landlords themselves.
The Energy Efficiency (Private Rented Property) Regulations for England and Wales, set to come into effect from April 2018, also mean that landlords must ensure that properties they rent in England and Wales reach at least an Energy Performance Certificate (EPC) rating of E before granting a tenancy to new or existing tenants. Any failure to adhere to this new law could result in a fine of up to £5,000 or 10 per cent of the rateable value of the property. However, analysis by Direct Line for Business4 reveals that updating the energy efficiency of a property can result in cost-savings of up to £1,000 per year.
In good news for landlords, recent research conducted by Direct Line for Business4 revealed that landlords across the UK expect to see an increase in rents of four per cent in 2017. On the average annual rental income of £10,740 this represents an increase of £386.64 throughout the year.
Christina Dimitrov, Business Manager at Direct Line for Business said: “Being a landlord in the current climate can be a profitable business, especially if there is a demand for rental properties as we’ve seen in recent years. However, with so many changes taking place, and with more on the horizon it’s essential for any landlord to be fully up-to-speed with legislation, as the penalties for breaking the law can erode any potential profits. We understand that one of the challenges for landlords is having the correct legal documents in place. To make it easier for landlords, Direct Line for Business offers a legal documents service to all policyholders, which can help with the creation of vital legal documentation needed when renting a property. ”