For years now, what would appear to have been successive waves of anti-landlord legislation have been bearing down on buy to let, but will this change under a new prime minister?

From George Osborne to Rishi Sunack, the Treasury, it would seem, has been milking the buy to let landlord for all it’s worth.

Announced in 2015 by George Osborne, and coming into full force in April 2020, Section 24 of the Finance Act 2015 restricts all income tax relief on property finance costs to the basic rate of 20%.

Add to this the 3 per cent stamp duty surcharge and the removal of the 10 per cent depreciation allowance on expenses, and it represents a drastic reduction in the amount of tax relief landlords, and particularly those high rate taxpayers with mortgages, can receive, compared with the previous regime.

Soaring house prices have mean that the Treasury now collects the highest amount of capital gains tax (CGT) on record. Tax paid on capital gains soared over 40 per cent to reach more than £14bn in the 2021-2022 tax year. Ten years ago this tax take was less that £4bn. Over 300,000 landlords paid the tax during the tax year, averaging around £44,000 each.

What’s more, a series of Secretaries of States for Housing – coming under their department’s current incarnation as the Department for Levelling Up, Housing and Communities (DLUHC) – have been steadily adding to the legislative load, regulations that govern letting with the biggest step change yet to come, possibly next year – through the Renters Reform Bill.

Furthermore, the Department for Business, Energy & Industrial Strategy imposes yet more serious financial obligations – in some cases it will mean spending up to £15,000 on upgrades – on the private residential landlords with its Minimum Energy Efficiency Standards, MEES regulations, in the private rented sector.

As part of the proposals on energy efficiency there is a target for all residential properties, not just buy to lets, to meet EPC band C by 2035. There is also a target for mortgage lenders to have an average band C across their lending book by 2030, but there are current Government proposals to bring the EPC band C rating requirement forward to 2025.

The pressure is too much for some

All these things considered, with the coming cost of living crisis and increasing interest rates, it’s hardly surprising that some landlords are finding the pressure on them is too great and they are considering selling-up. The consequence of this is the reducing number of rentals on the market at a time when demand for renting has never been greater.

The net result of all of this, in turn, is the hiking of rents to a level that becomes unaffordable for many. The surge in capital gains tax payments and a rapid rise in evictions claims are perhaps indicators of the so call “landlord flight”, as experts argue this is all due to landlords who are abandoning the private rented sector.

Not all doom and gloom

It’s not all bad news of course. A buy to let investment still returns, on average, far more that you can get in a building society and most other forms of investment, plus it gives one of the best hedges against inflation – property is a truly valuable and readily available asset class to give you this protection. When you consider inflation is set to hit 13 per cent later this year, you need it.

The tax hikes can be off-set to a large extent by incorporating your landlord business, though this does not suit everyone, so get professional tax advice before you enter into this. And landlords can mitigate a large part of the expense by learning to manage their own rental properties – managing tenancies is not by any means rocket science – with a little bit of study and some experience, private landlords are every bit as competent as the average letting agent.

The repair state of the property should be every landlord’s concern and no one should go into the lettings business with inferior or dangerous properties. Making sure your properties meet the latest standards should be a top priority from day one, and by making your property energy efficient, it means your tenants reap the benefit in lower energy bills and you will market your rentals more easily.

But there are still clouds on the horizon

The Renters Reform Bill promises the biggest step change to buy to let in England for 40 years. The removal of section 21, which effectively ends the regime of the short-hold tenancy, removes the changes introduced by the Thatcher government in 1980. Instead of an assured shorthold, tenancies revert to assured tenancies (AT) where the tenant has pretty much full security of tenure, not too far removed from the “Rent Act” regulated tenancies.

That’s not to mention the removal of fixed terms, which means tenancies can run indefinitely unless the tenant seriously breaches the contract, whereas the tenant can leave with a short notice. This will bring turmoil to the student lettings market, where landlords will not be in a position to let to a new academic year of students in advance, not being sure the current cohort will leave.

Is the course set?

The big question for landlords is, under a new premier, and with the architect of the Renters’ Reform Bill having been fired by Boris Johnson, will there be a last minute change of course with the Bill?

4 COMMENTS

  1. It is certainly whittling it down! If you are a 40% tax payer S24 will have a big effect on anyone with a big mortgage, especially as rates go up.

    Personally I am positioning for EPC ie selling anything difficult – 2 down 2 to 4 to go.

    The problem with killing the BTL market is there is still a huge need for rentals & there is no alternative. Rents are becoming unaffordable & people ever more desperate. How many will find they can’t pay their rent when the winter fuel bills hit? Look out for a wave of evictions by spring 🙁

  2. For far too long rogue landlords have been allowed to get away with the mistreatment of tenants and local authorities have failed to clamp down hard on them (understandable when they have so many problems with their own arms-length housing stocks being unfit).

    Landlords have failed to educate themselves and have helped the likes of Shelter to construct a “landlords are bad” message which the dumbed-down public have bought into – not hard as its easy to coral people to complain about anything which costs them a penny.

    A new Tory leader will continue that dumbing-down appeal to the masses; and continue to follow a popularist agenda.

    Landlords are in for a very rough ride – but those with some knowledge, decent properties, low financing and thick skin are due to come out the other side doing very well from it all.

    Rents will continue to rise as supply dwindles – with no attempt to build affordable housing to mitigate against it.

    Landlords and their Associations need to bang heads together to come up with a clear message to place the blame firmly where it belongs – at both national and local Government.

  3. NEVER in all of history has there been a situation where Govt policy causes millions of letting properties to be removed from the long term letting market.

    The EPC requirements will cause this.
    LL will either sell up or convert to FHL etc which doesn’t require EPC compliance…………at the moment!!

    It is rarely worthwhile improving to EPC C status.

    Selling up won’t involve selling to tenants.
    They will be homeless and nobody will care.

    Apparently lots of FTB who were never tenants are buying these ex-LL properties.

    Guess they have been living at the familial home.

    This is just what the Govt wants.

    Though I don’t believe Govt expected so nany LL would try other forms of letting.

    To the point that Govt may have to introduce further penal policies to make it not worthwhile to do FHL etc.

    Govt wants to force LL to sell up by means of onerous regulations etc.

    LL should accept they have lost the war and sell up.
    The way things are going LL would receive better yields leaving their capital in savings accounts.

    All figures for PRS yields are based on tenants paying rent. …………….doesn’t always happen though does it!?

  4. Ecp c is ridiculous mine is a Rating D. This will just make LL ramp up the prices. I believe when the time is right sell up and look to investing abroad. UK government has never been for the hard working class people who just want to do better. My advice look into moving abroad you only have 1 life

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