With the Conservatives remaining in power after the 2019 general election and Brexit finally underway, the ‘Boris Bounce’ has seen the property market pick up again restoring a degree of positivity.
However, there are plenty of legislation changes that will apply to property investors and landlords in 2020. The new rules imposed by the Government, most of which will come into play in April, could affect your bottom line. Here’s what you need to know…
1. Changes to Mortgage interest tax relief
Under new rules being phased in by April 2020, landlords will progressively lose valuable tax relief on their buy-to-let mortgage costs.
From April onwards, you’ll only be able to subtract a flat credit of 20% of your mortgage expenses from your rental income when completing your tax return.
This tax relief change only affects private landlords. Investors that set up a business that owns their rental properties will be able to continue to declare rental income after deducting the mortgage. However, this should be weighed up thoroughly as even with this tax saving you could end up worse off.
2. Letting fees ban
In 2019, letting agents in England, Wales and Scotland were banned from charging fees to tenants. And from 1st June 2020, any term in a tenancy which requires the tenant to pay fees will no longer be binding, regardless of what the agreement says or when the tenant signed it.
The changes were introduced to prevent letting agents from overcharging tenants; however, this has had a knock-on effect for Landlords as many agents simply pass the cost of inventory checks and other admin costs on to them.
Northern Ireland has not yet confirmed the ban, however, tenants can formally complain if they feel they are required to pay fees that solely ‘benefit the landlord’.
3. Section 21 evictions
Section 21 of the Housing Act currently allows landlords to end a ‘rolling’ tenancy with two months’ notice, without giving any reason for doing so.
At the end of 2019, the controversial topic of debate was whether or not the government should repeal the act in a bid to offer tenants more security in the event of a ‘no fault’ or unfair eviction.
Naturally, landlords fear the proposed changes as this could mean they have to deal with troublesome tenants and even court action in order to repossess the property – which can all be costly.
It is not yet known what will happen with Section 21 and when it will come into action, but investors should keep it in mind.
4. Tighter deadlines for capital gains tax
Capital gains tax on property is currently paid through your self-assessment tax return and currently doesn’t need to be paid until the following tax year. So, if you sell a property that incurs CGT in the 2018/2019 tax year, it doesn’t need to be declared and paid until 31st January 2020.
But from April 2020, sellers will need to pay the full amount owed within 30 days of the sale completing. Providing rates don’t change, the cost will be the same. However, the reduced timeframe may cause issues for investors selling for profit and failure to pay within the 30-days will lead to penalties.
Capital gains tax rates on property for 2019-2020 are currently at 18% for basic rate taxpayers (£12,001-£50,000) and 28% for higher-rate taxpayers (£50,001+).
5. Private residence relief changes
Private residence relief (PRR) means homeowners selling their primary residence don’t have to pay CGT on profits. This also applies to some landlords who used to live in the property as their main residence but are now selling it.
Under current rules, you are exempt from paying tax on the final 18 months that you owned the property, regardless of whether or not it is rented out. This means you have a longer time to sell the property after moving out before you become eligible to pay capital gains tax. But from April 2020, capital gains tax will only be exempt for the last 9 months you owned the property.
6. Letting relief changes
For those who qualify for PRR, it might also be possible to claim letting relief.
Under current rules, you can claim up to £40,000 in capital gains tax relief if you let a property that is, or has been, your main home – even if you haven’t lived in it for a long time.
But from April, letting relief will be restricted only to property owners who share occupancy of a property with their tenant.
7. MEES regulations
In a bid to become more energy-efficient, from April 2020, landlords will need to meet the new Minimum Energy Efficiency Standard (MEES) regulations. This means all rented homes must have a minimum Energy Performance Certificate (EPC) rating of ‘E’.
Landlords with properties that don’t meet the regulations must carry out energy efficiency measures on their properties, up to a cap of £3,500 a property.
The MEES mean that landlords can no longer rent out homes with an EPC rating of F or G, and those who continue to do so face fines up to a maximum of £5,000.
8. Stamp duty
The Tories have proposed introducing a 3% stamp duty surcharge for foreign buyers in England which is predicted to come into play after the Budget announcement in March.
While this can be seen as a win for British investors, foreign investors will no doubt be looking to purchase property before the changes are introduced. The higher tax means a wealthy foreign investor purchasing a £1.5m property in London would pay £183,750 in stamp duty compared with £93,750 for a Londoner buying the property for their own use.
Landlords will need to prepare themselves for more economic rises and falls in 2020.
2019 saw buy-to-let mortgage rates fall steadily to reach an average of 3% in December and lenders are predicted to become even more competitive in 2020 – which means it could be a great opportunity to refinance your portfolio and lock in a great rate. However, depending on the outcome of Brexit, the Bank of England base rate could shift causing rates to increase.
Property prices are set to rise by 1-2% in 2020 according to a recent report conducted by Savills, but any further economic uncertainty could mean the current ‘slow’ market could be here for a while.
Landlords might not be able to rely on property price growth as much as in previous years and will potentially need to purchase property in better rental yield areas such as the north.
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