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Stamp duty hit for landlords

Written by admin on . Posted in Landlord, Leasehold, SDLT. No Comments on Stamp duty hit for landlords

UK landlords are facing increased rates of surcharge when purchasing buy-to-let property following increases over the past three months. The rate is now particularly punitive for those buying property in Scotland.

Stamp duty was devolved to the Scottish and Welsh Governments in 2015 and 2018 respectively. Rather than stamp duty land tax (SDLT), Scottish property purchasers now incur land and buildings transaction tax (LBTT), with land transaction tax (LTT) paid in Wales.

Increased rates

The surcharge increases are as follows:

  • For SDLT, the surcharge is 5% (previously 3%) for purchases from 31 October 2024 onwards.
  • For LBTT, the surcharge is 8% (previously 6%) for purchases from 5 December 2024 onwards.
  • For LTT, the surcharge is 5% (previously 4%) for purchases from 11 December 2024 onwards.

The top rate of duty in England, Northern Ireland and Wales is now 17% where property costs more than £1.5 million. In Scotland, it is 20% payable once a property costs over £750,000.

For a buy-to-let property costing around £450,000, this means landlords in England and Northern Ireland must now pay SDLT of £32,500. For Scotland, the figure is considerably higher at £54,350, and for Wales, a landlord will pay £36,200.

From 1 April 2025, the SDLT figure will rise further by £2,500 to £35,000 when the nil rate threshold reverts to £125,000 after a temporary increase to £250,000.

Adventurous alternatives

Two ways in which more adventurous landlords can drastically reduce the amount of stamp duty payable is by buying mixed-use property (such as a shop with a flat above it), or by buying a commercial property and obtaining planning permission to convert the property into residential use. Both suggestions work equally well in Scotland and Wales. Conversion is a complex area, however, and expert advice is recommended.

In both cases, duty will only be charged at non-residential rates, so, for that £450,000 property outlined above, the cost will be reduced to £12,000 in England and Northern Ireland, to £11,000 in Scotland and to just £10,250 in Wales.

Online calculators for the amount of duty payable on a property transaction can be found here:

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EPC upgrade work

Written by admin on . Posted in Landlord, Leasehold, Property. No Comments on EPC upgrade work

Rental property has been set a government target to meet an energy performance certificate (EPC) rating of C by 2030. Although new funding in support of this initiative has been announced, the grants will not help all landlords.

Around a third of rental properties were built before 1919, many with solid walls. Such property will be particularly difficult to bring up to an EPC C rating. From 2030, it will not be possible to legally rent out a property without such a rating.

Grant conditions

From 1 April 2025, a grant of up to £30,000 will be available for a landlord to improve their first rental property. This funding will be capped at £15,000 for energy performance upgrades and £15,000 for low carbon heating:

  • For second and subsequent properties, the overall grant will be capped at £15,000, with the landlord having to contribute a corresponding amount (or more).
  • If a property is situated within an eligible postcode area, it will automatically qualify for a grant. Around half of England’s postcode areas qualify, selected on deprivation factors.
  • Other properties will qualify if rented to tenants who receive certain means-tested benefits (such as universal credit or housing benefit), or the tenants’ annual gross income is less than £36,000.

There is no limit on the number of properties for which a landlord can claim grants, but the overall maximum funding per landlord will be £315,000.

Properties will only qualify for a grant if they have an EPC rating between D and G. After upgrading, a property should reach a C rating wherever possible.

Upgrades

Upgrades include:

  • Low carbon heating: Clean heat measures such as heat pumps or high retention storage heaters. Older properties may, however, be unsuited to heat pumps, and the current method of calculating EPCs could result in a lower rating if a heat pump is installed.
  • Energy performance upgrades: Measures such as double/triple glazing, insulation, draughtproofing, solar panels and smart heating controls.

A detailed explanation of the available grants can be found here.

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Uncertainty for landlords

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Despite support from the Labour Party, the Renters (Reform) Bill was not enacted before parliament was prorogued ahead of the general election. The Leasehold and Freehold Reform Act made it under the wire, but without the expected cap on ground rents.

Rental reform

The Renters (Reform) Bill would have seen the abolition of the controversial Section 21 notices, which enable landlords to take possession of a property without providing a reason. Tenants and homelessness charities expressed consternation at the failure to enact the provision.

The Bill is likely to return in some form regardless of who wins the election. A Labour government might well abolish Section 21 notices for all tenancies straight away despite the readiness of the county court system to process possession orders.

Leasehold reform

There was no expectation of an immediate reduction of all ground rents to a peppercorn amount, but it was reported a month ago that a compromise would see ground rents initially capped at £250 annually. Although this measure was not included, the new Act may help landlords who own leasehold flats and apartments:

  • Leaseholders can now obtain a 990-year lease extension; previously, leases for flats and apartments could only be extended by 90 years.
  • When a lease is extended, future ground rent will effectively be set at zero.

The valuation process is now more favourable to the leaseholder because there is no longer any requirement to pay a marriage value, plus the future value of ground rents in the valuation calculation is restricted. Prior to the new Act, marriage value came into play when a lease had 80 years or less to run. It represented the increased market value of obtaining a longer lease.

Ground rent is not payable on new leases granted from 30 June 2022, so the new measure will help landlords with older leases move to a level playing field.

Furnished holiday lets

The advantageous tax regime for furnished holiday lettings is set to be abolished from April 2025, but the election announcement has introduced uncertainty here as well. The draft legislation has not even been published yet.

HMRC have rejected a suggestion to introduce a brightline test which would have clearly set out the distinction between trading and investment for such properties.

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Thoughts for buy-to-let owners selling up

Written by admin on . Posted in Capital Gains Tax, Income Tax, Landlord, Leasehold, self-assessment. No Comments on Thoughts for buy-to-let owners selling up

While the higher rate of capital gains tax (CGT) on residential property disposals has dropped by 4%, from 28% to 24%, from 6 April 2024, the vast majority of landlords who sell up are facing a higher CGT bill when compared to two years ago.

Buy-to-let landlords may be selling because of the implications of the Renters Reform Bill, while furnished holiday homeowners will see their advantageous tax benefits removed from April 2025.

Higher CGT bills

Landlords will generally be worse off despite the 4% rate cut, because it generally doesn’t compensate for the recent reduction of the annual exempt amount from £12,300 to £3,000.

  • Basic rate taxpaying sellers: will be worse off as the lower rate for gains falling within the basic rate tax band is unchanged at 18%.
  • Higher/additional rate taxpaying sellers: with a gain of less than £68,000, will be worse off; such as newer landlords who have benefited from less price growth and northern landlords where property values are generally lower.

Only higher and additional rate taxpayers with a gain in excess of £68,000 will find themselves better off.

Already sold up

 Landlords who have already sold their property and face a CGT liability at the previous higher rate of 28% could consider a risky strategy of potentially benefiting from the 4% rate reduction – by deferring the gain through an enterprise investment scheme (EIS). The gain will come back into charge when the EIS investment is realised.

There are two main risks associated with this plan:

  • EIS investment risk: some or all of the investment could be lost; and
  • CGT rate change: the rate of CGT could go up again by the time the gain comes back into charge.

While not worth it solely for the rate reduction, this is a useful bonus if considering an EIS investment for the 30% income tax relief.

HMRC’s guide to tax when you sell property can be found on the government website.

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New lease and advertising rules for landlords

Written by admin on . Posted in Freehold, Landlord, Leasehold. No Comments on New lease and advertising rules for landlords

If enacted in its current form, the recently published Leasehold and Freehold Reform Bill will affect landlords in England and Wales who own a leasehold property.

Extending a lease

The government’s intention is that the standard term given when extending a lease will be 990 years. The extension term for flats and apartments is currently 90 years.

The initial lease term for leasehold property could be just 99 years. For a new landlord, this might seem fine, but it is generally not a good idea to let a lease run down until there is less than 80 years remaining. Not only will it (currently) be more expensive to extend, but such a property could be difficult to sell or remortgage.

There are various other changes, with two of the more important being:

  • The reduction of ground rent to a peppercorn (virtually zero) upon payment of a premium.
  • The removal of the ‘marriage value’, which can make it more expensive to extend a lease where the lease term has run down. The marriage value reflects the additional market value of having a longer lease. Currently, there is only certainty of avoiding marriage value if a lease has more than 80 years to run.

Ground rent is of particular concern if it doubles every ten years or at more frequent intervals.

Advertising

More detail will now be required when advertising property, regardless of whether it is let privately or via an agent. Many landlords and agents will already provide much of the mandatory information, but landlords letting privately might overlook such items as:

  • Details of the property’s utilities, or lack of;
  • Available parking;
  • Issues with mobile coverage;
  • Flood risk; and
  • Accessibility facilities.

These new measures will now give prospective tenants as much information as possible prior to viewing.

A quick guide for landlords advertising a property can be found here.

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