A Clearer View

Lisa Simon, Partner and Head of Residential Division, offers a practical update on residential letting issues currently in the news.

Changes to Capital Gains Tax

In the Autumn Statement, the Chancellor announced changes to Capital Gains Tax (CGT) which will increase the amount payable by landlords on the sale of a rental investment. 

CGT is triggered when an asset is sold for a profit. On property, a basic-rate taxpayer pays 18% CGT on that profit, while a higher-rate taxpayer pays 28%. Currently a £12,300 threshold exists, but that is to be halved from April 2023, to £6,000 and again to £3,000 in April 2024.

Accountants have calculated that the average landlord will pay £1,764 more in CGT if they sell during the 2023-24 tax year compared to today.

There are means by which CGT can be reduced. Landlords may deduct legitimate costs including estate agents’ fees, stamp duty, surveying and valuation costs, and certain improvements to the property.

It is also possible to offset losses made when selling other assets. For example, if several properties are sold, one of which makes a loss, this figure can reduce the overall CGT bill. This can be done by completing a self-assessment tax return, which can also take into account non-property assets, such as under-performing shares.

A rental property may in some circumstances qualify for Private Residence Relief, which can be applied to the proportion of time in which the property was the landlord’s main residence. 

As CGT only applies to sales of properties by individuals, many buy-to-let landlords are setting up limited companies to manage their portfolios, as for a higher-rate tax payer, corporation tax at 19% (currently) is significantly preferable to CGT at 28%.  

End of tenancy deposit disputes 

According to the Tenancy Deposit Scheme’s 2022 Statistical Briefing, end of tenancy deposit disputes have increased in the last year.

In 2021-22, the TDS Insured and TDS Custodial tenancy deposit schemes in England and Wales issued 31,276 adjudications, an increase of 1,579 from the previous year. This is believed to be a backlash following the multiple Covid lockdowns, during which fewer tenancies were terminated. The research found that the main reasons for deposit disputes in England are unsatisfactory cleaning (50%), damage to fixtures and fittings (46%) and rental arrears (31%).  

So, what can be done to prevent end of tenancy deposit disputes? All landlords should ensure that a formal tenancy agreement is in place, signed by both parties. A good tenancy agreement, accompanied by a comprehensive inventory, will outline the key responsibilities in relation to issues such as cleaning and damage, while also clarifying the condition of the property, fixtures and fittings. We also recommend that mid-tenancy inspections are carried out to enable landlords to identify any potential issues at an early stage. 

Energy efficiency measures

As financial pressures continue to impact on landlords and tenants alike, concern about the ability to meet rising energy efficiency requirements is increasing, specifically in relation to Environmental Performance Certificates (EPCs). Under current Government proposals, privately let properties are likely to require an EPC of at least B by 2030.

When the Department for Business, Energy and Industrial Strategy recently commissioned an independent review of the Government’s approach to delivering its net zero target, the property industry was quick to respond, in particular highlighting that the new and revised cost cap of up to £10,000 challenges landlords, especially those with smaller or lower value portfolios. 71% landlords still own rental properties with an energy performance certificate rating of D or below, according to research.

There is a variety of funds available to support landlord, including and most recently the Green Home Finance Accelerator, launched by BEIS in October. 

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