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As we move into 2023, there are many changes and new laws that landlords need to pay attention to. Here is a complete list of the most important changes and things owners should think about in the coming year:
Get Ready for Rising Interest Rates
Since interest rates are increasing, homeowners should be ready for possible increases in mortgage rates. Last year, landlords got both good and bad news. Even though house prices kept going up and demand for rentals stayed high, there were problems in the form of higher mortgage rates and expectations that property values would go down.
According to the most recent data from the Office of National Statistics (ONS), the average price of a UK home went up by 12.6% in the last year leading up to October. It was more than the 9.9% increase seen in the year before. The average house price in the UK last October was £296,000. It increased drastically since then. But some other measures show that prices may have already decreased by then.
In recent years, buy-to-let owners have had to deal with more taxes and rules, but the big change in mortgage rates surprised many. These higher rates have impacted owners with mortgages, making it harder for them to make money from rising rents. When more people want to rent, and rents go up, this should be good for owners. But for many owners with mortgages, rising mortgage rates completely wiped out these gains, causing them financial problems and making less money.
Do You Need a Landlord’s License?
Local councils are making licensing rules apply to normal buy-to-let properties and Houses in Multiple Occupation (HMOs). Landlords should know what licensing standards are in their area. HMOs will no longer be the only ones that need a landlord’s license. Now, standard buy-to-let properties will also need one. It means landlords must know and follow the rules set by their local council about licensing. Traditionally, licensing plans have focused on HMOs because it’s hard to manage a place where multiple people who don’t know each other live together. Local councils are now setting licensing rules for standard buy-to-let properties to control the private rental market and raise standards across the board.
The exact licensing rules can differ from one town to the next, so landlords need to know the rules in their area. It includes knowing if a license is needed for their land, how to apply if there are any fees, and how long they have to comply. By staying updated on local licensing rules, landlords can ensure they meet the requirements and avoid fines or other legal problems. Most of the time, landlords can find out about licensing standards on their local council’s website or by calling the council directly. It’s important to regularly check for updates and changes to licensing rules since local governments may add new requirements or expand on current ones.
Start Thinking about EPC Changes
Landlords should consider the upcoming changes to EPC (Energy Performance Certificate) requirements. The Minimum Energy Efficiency Standards (MEES) are getting stricter, and by 2025, all new leases on rental buildings will have to meet a minimum EPC grade of ‘C’. By 2028, this rule will apply to all leases already in place.
An EPC is a certificate that rates the energy efficiency of a property on a scale from A to G, with A being the most efficient and G being the least efficient. These regulations aim to improve rental properties’ energy efficiency, reducing carbon emissions and energy consumption. Currently, the minimum requirement for rental properties is an EPC rating of ‘E’ or above. However, this will change in the coming years. By 2025, all new tenancies must have an EPC rating of ‘C’, meaning landlords must improve their properties to meet this standard. The deadline for achieving a ‘C’ rating for existing tenancies is 2028. Landlords will have to take steps to upgrade their properties and improve their energy efficiency to comply with these regulations.
EPCs classify properties on a color-coded scale ranging from A to G, with A representing the highest efficiency level, resulting in lower fuel costs.
Two major factors set a property’s EPC rating:
- Energy consumption per square meter
- Carbon dioxide emissions
EPC ratings come in both numerical and lettered formats. The numerical grade ranges from 1 to 100, and in certain cases, up to 120, depending on the inclusion of renewable energy measures. The lettered grading scale runs from A to G, with A being the most efficient. Please note that these point ranges are indicative and may vary depending on specific regulations or standards in different regions.
Landlords need to start planning for these changes early. It may involve conducting energy assessments, implementing energy-efficient measures, and making necessary improvements to their properties. The cost of these upgrades will vary depending on the current energy efficiency of the property and the required improvements.
Landlords should consider the benefits of making their rental properties more energy efficient. It includes getting renters who care about the environment, lowering energy costs, and ensuring the building aligns with the changing rules. A property that uses less energy may also be worth more on the market and attract a bigger range of possible tenants.
Renters Reform Bill
The Renters Reform Bill tries to make the relationship between landlords and tenants more fair. It is expected to become law in 2023. It includes the abolishment of Section 21 notices, the end of fixed-term tenancies, and limitations on rent increases. Landlords must join a property portal and give information about the properties they rent. It brings about big changes that landlords need to be ready for:
When Section 21 notices are no longer allowed, owners can no longer kick out tenants without giving a cause. Instead, they will use updated Section 8 letters with more reasons for returning the property. Fixed-term contracts will end, and all contracts will be month-to-month by default. It would make it easier for renters to give notice and end their agreement whenever they want.
The Renters Reform Bill would cap how much rent can go up. Any time a landlord wants to change the rent, they will have to give at least two months’ notice, and tenants will have the right to fight against rent rises they don’t think are fair.
These changes aim to make the rental market fairer and give renters more stability and protection. Landlords should watch how the Renters Reform Bill moves forward and learn what it says. Landlords must join the property site and follow the rules about evictions and rent hikes, among other things if they want to stay on the right side of the law.
It’s important to keep in mind that the details of the Renters Reform Bill could change as it goes through the parliamentary process. Landlords should get professional help to understand how the bill will affect them fully.
Growing Tenancy Demand and Rising Rents
Due to problems with cost in the home market, more and more people are renting. Landlords can take advantage of this trend, but it’s important to consider how much renters can pay and avoid raising the rent too much. Landlords need to be careful when setting rent prices. The stronger desire for rental properties could help landlords by ensuring they always have renters and making their properties less likely to be empty. Balancing fair rental prices and making as much money as possible is important for long-term success as a landlord.
Understanding the market conditions should help landlords decide how much to charge for rent. It’s important to do a lot of study on the market and know how the local rental market works, such as the average rent for comparable houses in the area. With this knowledge, landlords can set housing prices that are competitive and fair for tenants.
Also, it’s important to consider renters’ incomes, the cost of living in the area, and the way supply and demand work in the local rental market.
Prepare for Cost-of-Living Crisis
As the cost of living keeps increasing, landlords must take steps to protect themselves from possible financial problems. It includes implementing plans to reduce the chance that renters will only pay their rent on time if they can. Two good ways to protect a landlord’s financial interests are to do a thorough background check on possible renters and think about rent guarantee insurance.
Reference checks on possible renters are a very important part of choosing tenants. Landlords can find out about a tenant’s financial security, job history, reliability, and renting history by doing a thorough background check. It helps landlords work out if the renter can pay on time every month. Thorough referencing makes it less likely that you’ll rent to people who can’t pay the rent or have a past of not paying it.
Rent guarantee insurance is another great way for homeowners to protect the money they make from renting out their properties. This protection protects the owner financially if tenants don’t pay their rent. It usually pays back owners for rent that has yet to be paid for a certain amount of time, ensuring they have a steady income even if their renters have money problems. Rent guarantee insurance gives homeowners peace of mind and protects them from financial losses.
Cost-of-living pressures do not harm renting income as much as they could if owners fully check out possible tenants and think about rent guarantee insurance. These steps help homeowners handle the risk of late rent payments and protect themselves from possible financial problems.
It’s important to remember that even though referencing and insurance are good ways to protect yourself, they don’t completely protect you from rent debts. Landlords should review and update their licensing and insurance practices regularly to keep up with market changes and ensure they are best protected financially.
Making Tax Digital for Landlords
Making Tax Digital (MTD) is a government program that aims to update and simplify the United Kingdom’s tax system. Even though the MTD standards won’t go into effect until 2026, landlords need to know about them.
Under MTD for renters, those with an annual rental income of more than £50,000 should keep digital records of their income and spending using compatible accounting software or digital tools. It means dismissing the old ways of keeping records on paper and switching to digital systems so that financial records are correct and up-to-date. In addition to having digital records, landlords will tell HM Revenue and Customs (HMRC) about their property income every three months. Instead of sending in a yearly tax return, these updates will be shared online.
By having digital record-keeping and changes every three months, HMRC hopes to improve accuracy, make compliance easier, and make it easier to find any mistakes or problems faster.
Changes to Capital Gains Tax
The tax-free amounts for landlords selling buy-to-let houses will go down from £12,300 to £6,000 in April 2023 and to £3,000 in April 2024. For good financial planning, you need to know about these changes. Changes to Capital Gains Tax (CGT) limits are important for landlords who want to sell their buy-to-let houses. These changes will affect how much landlords can earn from selling their homes without paying taxes.
The tax-free amount will drop even more in April 2024, when it will be cut to £3,000. After this date, landlords who sell their rental properties can only keep the first £3,000 of their profits tax-free. Anything over this amount will be subject to CGT. Landlords need to know about these changes to CGT allowances to plan their finances well. When deciding whether to sell a buy-to-let home, consider how these lower limits might affect your overall tax bill.
Landlords should talk to a tax expert to determine the possible CGT effects of selling their properties. We are here to advise on how to plan your taxes to minimize the effects of CGT and get the most money from the sale. By keeping up with changes to CGT deductions, landlords can make smart decisions about when to sell their properties and develop good financial plans to make the most of their tax situation. This proactive approach to financial planning ensures homeowners are ready for the changing tax situation and can get the most out of their property investments. If you need help with your tax comliance call our specialist tax advisors.