Landlords, watch out for these legislative changes in 2020
Landlords, like most businesses and individuals across the country, have seen their income affected to various degrees by the current coronavirus pandemic. Many are experiencing cash flow problems as tenants struggle to make rental payments.
However, landlords are also facing other changes this year. So far, 2020 has seen the introduction or phasing in of a raft of new legislation which has the potential to seriously impact their income. Below, we list some of the biggest changes so far this year.
Landlords face bigger tax bill
Under the previous tax relief system, landlords could deduct all mortgage interest payments from their rental income, meaning that they were only taxed on their profits. This was considered a key advantage of borrowing money through a buy-to-let mortgage. In 2017, however, the government began to phase in a new system, whereby landlords would only be able to deduct a decreasing percentage of their mortgage interest from their rental income.
In the 2017-18 tax year, landlords were still permitted to deduct 75% of their mortgage interest payments from their rental income, decreasing to 50% in 2018-19 and 25% in 2019-20. This year, the 2020-21 tax year, they will now be taxed on the entirety of their rental income and given a 20% tax credit instead. This won’t have any effect on basic rate taxpayers, but will result in a significantly higher tax bills for higher rate taxpayers, who effectively received 40% tax relief under the old system.
Energy efficiency requirements extend to all tenancies
On 1 April 2018, legislation was introduced requiring all new lets and renewals of tenancies in the private rented sector to have an energy efficiency rating of at least E. As of 1 April 2020, this requirement extended to all existing tenancies as well. This piece of legislation has the potential to really hit landlords in the pocket, as they could be obliged to spend up to £3,500 to upgrade their property to the required standard or face a penalty of up to £4,000.
New rules for electrical safety checks
On 1 July, new regulations will come into effect requiring landlords to have all electrical installations inspected and tested by a qualified person for new private tenancies. After this initial inspection, electrical installations should then be inspected and tested at least every five years. Landlords have until 1 April 2021 to carry out electrical safety checks for existing tenancies, after which electrical installations will have to be re-inspected and tested every five years.
Local authorities can impose a financial penalty of up to £30,000 for landlords who breach these regulations.
Stamp Duty Land Tax surcharge for overseas buyers
In some more positive news for domestic buyers and landlords, a 2% Stamp Duty Land Tax (SDLT) surcharge was introduced by Chancellor Rishi Sunak in the 2020 March Budget. Experts hope that reduced overseas competition will encourage more domestic landlords to invest in properties, and provide more homes for Britain’s increasing population of private renters.
Concerned? Talk to the experts
If you are concerned about how new and upcoming legislative changes may affect you, then talk to our Residential Property team. We work with landlords to help them navigate the ever-changing regulatory landscape, which is especially important in these uncertain times when residential landlords are already feeling the impact of severe financial difficulties. Just get in touch on 0203 871 0140 or email firstname.lastname@example.org.