One often overlooked aspect of building, renting or selling a home is the Energy Performance Certificate (EPC). It can sound like a small thing, and it's easy to forget about, especially if you have lived in your home a long time. However, it is more important than you might think to look into whether you need to get one done for your property.
The 2016 budget inaugurated some major changes to the capital gains tax, which could have some major implications for buy-to-let landlords – especially those with diversified investment portfolios, and other companies.
What are the changes?
Effectively, there has been a decrease in the capital gains tax on most "chargeable gains": The 18% rate became 10%, and the 28% rate became 20%. One exception, however, is those chargeable gains that accrue on residential properties that do not fall under the relief umbrella for private residences.
The former 28% rate was generally applied to higher-rate taxpayers, trustees and companies, whereas the 18% rate covered anyone not in those categories (generally lower rate tax payers).
The residential property exception under the new law is pretty stringent. Under the banner of "residential property", the measure includes any land that has had a dwelling on it at any point during the current ownership.
Why were they implemented?
The idea behind these policy changes is to promote business growth and investment activity. The general wisdom is that low capital gains rates mean companies are freed up to do what they need to; essentially, to expand their capacities and create jobs. The idea behind the exception with regard to residential property is to encourage investment in companies, rather than properties. The new rates will be affecting all relevant gains realised since 6 April 2016.
What will the impact on the economy be?
The changes will significantly decrease the amount flowing into the Exchequer coffers, to the tune of £600-700 million per year over the next five years, according to the Office for Budget Responsibility. On the other hand, it will significantly bolster company coffers, giving businesses the capital they require to grow and open up new jobs.
It will also have a major effect on those individuals and families with significant capital holdings, and those who make multiple investment transactions throughout the year. With new lower capital gains tax liability, they will now have more room to play with when it comes to managing and growing their investments.
Of course, things will not change quite so much for those holding residential properties, unless of course they opt to switch some of their investments from properties to enterprises. However, the changes are designed so that they do not disproportionately affect any particular income group.
The government holds, in addition, that there will be no negative impact on businesses or other organisations, as the changes are aimed primarily at individuals with capital gains tax liabilities, personally or professionally.
What should I do if I am an unincorporated buy-to-let landlord?
This is the question many people are asking, and unfortunately there’s not a perfectly clear answer.
One possible option is to incorporate, which also allows you to avoid private income tax rates, and take advantage of corporation profits taxes, which decreased in April 2017. However, there are of course other costs to consider involved in running a business, including administrative costs and those related to renegotiating mortgages.
Once upon a time it was risky to give your money to a letting agent. While the vast majority could be trusted not to run off, there was no hard-and-fast legal protection against them doing so. So, in giving a letting agent the large sums needed to rent a property, you always ran the risk of potentially losing that money.
Happily, this is no longer the case. As of this month, measures are in place to ensure what has become known as Client Money Protection (CMP).
What is Client Money Protection?
CMP is a compensation scheme designed to protect the money that landlords, tenants and others give to letting agents. If an agent charged with the money of a homeowner or renter proves untrustworthy - that’s to say if they go missing or show themselves to be unable to manage their own funds - CMP provides for reimbursing the person who has entrusted that agent with money.
CMP was included in an amendment to the Housing and Planning Bill, which became law on 12 May. Speaking to the House of Lords last month, Baroness Diane Hayter said the amendment "would require every letting agent to have the money they hold be protected, so even if the letting agent disappeared or went bankrupt the money would be safe."
The Baroness went on to explain that the situation should be the same as that which exists with solicitors; that is, that the money belongs to the client and should be kept in a separate bank account.
How Does Client Money Protection Help Me?
CMP helps relieve the stress involved in being a tenant or landlord. Both these processes involve entrusting other individuals with large sums of your money. Until recently there was no solid legal protection for doing so, but now you can give your money to letting agents without worrying, since CMP will back you up if the agent turns out to be unworthy of your trust.
Is Client Money Protection mandatory?
As of the passage of the Housing and Planning Bill, letting agents are legally required to make clients aware of their fees, and the redress scheme that they are a part of, as well as their participation in a client money protection scheme. Additionally, many professional organisations and agent associations are now requiring participation in a CMP program for their members. The National Federation of Property Professionals, for example, now requires its members to take part in a scheme.
What Cover do I get with Property Genius?
Different schemes come at different premiums, and provide varying levels of coverage for letting agents and their clients. Payouts vary widely so it’s important to do some research into the best scheme for you. The Property 118 blog provides a pretty good comparison of some CMP schemes complete with per-year and per-claim payout breakdowns.
In our case, as we're members of Association of Residential Letting Agents (ARLA), they will compensate a landlord up to a limit of £25,000. Landlord claims are limited to three months’ rent. The total payable for a member company is £500,000 and in any one year, the scheme has a limit of £3 million.
Whatever the details of the plan you choose, the passage of the 2016 Housing and Planning Bill is great news for tenants and landlords everywhere. It means that you’ll no longer have to worry about your money when it’s in the hands of your letting agent.
As part of the deregulation Act 2015, there are a number of other important changes which all take effect from the 1st October 2015 specifically in the restrictions on serving Section 21 Notices. These restrictions however only affect tenancies created on or after 1st October 2015. All remaining assured shorthold tenancies in England will be swept under the new rulers on 1st October 2018.
- The document previously used for Section 21 Notices will no longer be valid and a new template notice will have to be used.
- Section 21 Notices now cannot be issued in the first 4 months of a tenancy.
- In the event that a tenant has paid an amount of rent in advance and a Section 21 Notice requires them to leave during the period paid for, the tenant is entitled to a refund of rent paid for the days they are not occupying the property.
- Section 21 Notice will only be valid for 6 months from the date of issue.
- For a Section 21 Notice to be valid, they must have provided tenants with the following at the start of the tenancy:
- A Gas Safety Certificate (if required)
- An Energy Performance Certificate (EPC)
- The Department for communities and Local Government “How to Rent – The checklist for renting in England” which can be downloaded by clicking here
What we’re doing to make sure you’re covered
We’ve amended our tenancy information pack we provide to new tenants to include the required documentation as set out in this new legislation. We provide this document together with the tenancy agreement and inventory. As part of the check in process, prior to handing over any keys, we ask for all occupants’ signatures to verify they have received all the documents the landlord must legally provide. Then once you issue a Section 21 Notice, if its eligibility is brought into question, the signed tenancy information pack can prove the tenants have received the necessary documentation.
New regulations were passed on the 14th September 2015 as part of the Governments plans to ‘create a bigger, better and safer private rent sector’. From 1st October 2015, landlords will have to ensure that a smoke alarm if fitted on every floor of their property where there is a room used wholly or partly as living accommodation. They will also have to put a carbon monoxide alarm in any room where solid fuel is burnt, such as wood which includes open fires. It does not include gas, oil or LPG.
Landlords will then have to ensure that the alarms work at the start of each new tenancy for example by pressing the test button until the alarm sounds, or even better, using an aerosol smoke spray. This is something we can check when the inventory check in is carried out, and ask the tenants to sign to agree the alarms are in good working order.
During the tenancy, it is the tenant’s responsibility to ensure the alarms work and it remains their responsibility to change the batteries as an when it is required. However, should the alarms become faulty during the tenancy landlords are responsible for replacing them.
While there was a lot of controversy regarding the short notice periods landlords and agents have had, it only applied to new tenancies which include agreements entered into on or after 1st October 2015. It does not include a periodic statutory tenancy which starts following the end of a shorthold tenancy. In addition, landlords do not need to check alarms when a tenancy is renewed under the same conditions i.e for the same premises by the same tenant.
What we do to ensure you’re covered:
On the initial instruction, we’ll check to see if the property meets the criteria for this legislation. If not, we can make arrangements to have smoke and carbon monoxide detectors fitted where necessary.
As part of our tenancy documentation, we include a fully conditioned inventory which would include the detectors. We’ll test all sensors and include these results in the document for the tenant to sign and agree too.
Over the next year, as a matter of precaution, any fully managed property will have an assessment made to see if sensors are required. If sensors need to be included, will will arrange to have them fitted along side our gas safety inspections to reduce any call out charge.