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Landlords in UK urged to keep up with changes in the private rented sector

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Wed 13 Sep 2017

Landlords in UK urged to keep up with changes in the private rented sector

With a raft of new laws introduced in recent years affecting those who own rental properties, private sector landlords are being urged to keep themselves informed or face being fined.

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 Direct Line for Business says that the impact of recent new legislation, including extra stamp duty on additional homes, the abolition of wear and tear allowance, tenants’ right to request energy efficiency improvements and mortgage tax relief, is affecting 1.75 million landlords.

The legislation that has had the biggest financial impact over the past year has been the changes to stamp duty which has added a further 3% on all newly bought buy to let properties.

Based on the average UK house price 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 the tax in the South East stands at £15,282.

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% every year until the 2019/2020 financial year.

Direct Line for Business’s analysis 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 2017/2018 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.

There have also been 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 forthcoming letting agent fee ban in England 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% of the rateable value of the property. However, analysis by Direct Line for Business 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 Business 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.

‘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,’ said Christina Dimitrov, business manager at Direct Line for Business.

‘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,’ she added.