The year ahead sees yet further legislation which has been in the pipeline finally come into force — preparing your buy to let business for those changes now may avoid any nasty shocks in the future.
Tax relief on mortgage interest
This year marks the final phase of the abolition of mortgage interest relief for landlords.
As our Knowledge Base revealed on the 6th of April 2017, the government introduced measures to steadily remove one of the most significant incentives for investment in buy to let property – the income tax relief that had been granted on buy to let mortgage interest repayments.
The government announced its intentions in 2015, and the amount subject to such tax relief has been reduced in steps since 2017. The tax year 2020 to 2021 is the first year in which the relief has been entirely removed. Instead, landlords will receive a tax-credit, based on 20% of their mortgage interest payments.
Capital Gains Tax (CGT)
Capital Gains Tax on the sale of any residential property has long been a complicated calculation. For some landlords, it is likely to become a whole lot more confusing.
Landlords who have previously lived in a property as their main residence before letting it to tenants enjoy relief from Capital Gains Tax (CGT) for the period in which they were living in the property. They have also previously enjoyed that relief for a further 18 months after they moved out of the home and let it to tenants.
With effect from the 6th of April 2020, however, that additional period of grace has been reduced from 18 months to nine – potentially increasing the landlord’s liability for CGT when the property is sold.
Complicating matters still further, from the start of the new tax year, landlords will only qualify for the so-called lettings relief if they continue to occupy a property which they have also been sharing with a tenant.
Since the calculation of your potential liability is complicated, you might want to look at a worked-through example published by Marketing Stockport on the 11th of December 2019.
Also, from April 2020, landlords are required to make CGT payments on account where residential properties are sold. These payments are required to be made within 30 days after completion.
Minimum energy efficiency standards (MEES)
Since April 2018, it has been illegal to let a property that has an energy efficiency rating of less than E. If it only achieves a rating of F or G, you must not let it until suitable alterations have been made to bring it up to at least an E energy efficiency rating.
With effect from the 1st of April 2020, these MEES rules apply to all let property. You face a fine of up to £5,000 if you continue to let residential property which achieves only an F or G energy rating.
As the official guidance advises, exemptions from these enhanced standards may be available if the cost of upgrading the energy efficiency of your let property exceeds £3,500.
Electrical checks and certification
The website Business Up North forecasts the introduction in 2020 of legislation to bring in the requirement for checking and certifying, every five years, the safety of electrical installations in let property.
The legislation is expected to incorporate a transition period of two years – with the first year making the checks obligatory for all new tenancies and the second year extending the requirement to all let property.