If you are a landlord, or are thinking about becoming one, you would be forgiven for thinking that buying to let or letting out a home you once lived in is something the government doesn’t want you to do anymore.
In England, there is 3% additional stamp duty to pay when buying an investment property (or second home) and more than 400 rules and regulations governing how to let a property safely, not to mention that your local authority has the power to introduce additional legislation, such as licensing. Add the withdrawal of higher-rate mortgage finance relief and the fact that capital gains tax has been reduced by 8% for every asset class other than residential property, and it can feel as though landlords business models are constantly attacked from every angle.
However, if you understand why the government is doing what it’s doing, it is possible to protect yourself against falling foul of the law or coming to any harm.
Firstly, from a health and safety perspective, the government - alongside local authorities - wants to ensure that the properties tenants rent achieve a ‘decent’ standard of accommodation. This means ensuring the electrics and gas are safe, both of which can be proved by securing certificates from properly qualified and accredited engineers. You can also minimise potential hazards in your rental property by keeping it free of damp, mould and condensation and making sure there aren’t any trip hazards, such as frayed or loose carpet, especially on the stairs. A good way to ensure you know the national and local letting laws around health and safety is to join a Local Authority accreditation scheme, if one exists in your area, which offer advice and support and keep you up to date with the latest changes in the industry.
Of course, if we are letting and managing your property, then we will work closely with you to make sure the property is let to the latest legal standards.
Secondly, the government is keen to ensure that tenants have reasonable heating bills, insisting that properties achieve a minimum ‘E’ rating on the EPC now for new tenancies, and by April 2020 for existing tenancies. Given that most homes in the UK are ‘D’ rated and when you consider that lower energy bills for tenants mean they have more disposable income, if you can, consider getting the rating for your rental property up to ‘D’ or even ‘C’. That should protect you against having to make further improvements in the next few years if regulations tighten up and you’re also more likely to let your property quickly – and may even be able to increase the rent you charge.
Thirdly, they want to protect tenants’ rights, which is why you are obliged to give your tenant an up-to-date ‘How to rent’ guide, to ensure they know what their rights and responsibilities are. Furthermore, as part of the raft of measures to crack down on illegal immigration, you (or we will do on your behalf) have to make ‘right to rent’ checks on all your tenants to make sure they have the legal right to be living in the UK. If a tenant stops paying rent, absconds or causes problems for neighbours or other tenants, you can’t simply get rid of them. Take professional advice, either from us at Newton Fallowell, or from a landlord association or specialist legal company, to make sure you take the correct steps and don’t give a court any reason not to give you back possession of your property.
Finally, keeping CGT rates 8% higher for property than for other assets is part of a wider move by the government to encourage people to invest their capital in financial assets. This is because they are concerned that buy to let can cause property prices to rise more quickly than they would in a more ‘natural’ market with reduced numbers of investment buyers. However, as most successful investors tend to only buy property they can add value to and/or secure at a discount, the government’s reasoning might not be entirely correct and despite higher taxation, it’s still possible to make money from property.
The reality is, even though landlords are ‘under attack’ to some extent, you can still have a very successful buy to let investment if you:
1. Join a local authority landlord or property accreditation scheme
2. Make sure your property doesn’t just meet the minimum legal standards, but exceeds them, to provide the best standard of accommodation you can achieve that still gives a reasonable return when priced at a fair rent
3. Handle any problems in the legally correct way, taking advice from and using the services of experts.
At Newton Fallowell, we are always happy to advise you and help ensure that not only your tenants’ rights, but also your rights as a landlord are protected.