Since December’s general election and the landslide Conservative victory, the news has been full of Brexit and its impact on the UK. However, that’s not the only change the Government is bringing in. Here, our Head Residential Property Katherine Eaton looks at the potential impact on the property market.
The question on everyone’s lips right now is, what does Brexit mean for us?
No one really knows, and the likely impact to the property market is just as uncertain right now. For instance, will overseas buyers still want to invest in UK property? Will a flood of expats return from their homes in Spain, seeking places to live? Will there be a UK labour force to meet a demand for new homes? Your guess is as good as ours.
Meanwhile the Government seems determined to make changes to the property market in 2020, in which proposals for the rental market feature heavily, and everyone is waiting to see what the next Budget will bring on March 11 2020.
Income tax relief for landlords
Since April 6 2017, the Government has been reducing the income tax relief that landlords can claim on rental properties, such as mortgage interest, with the final phase due to end on 6 April 2020.
From April 2020 to 2021, no costs will be deductible from rental income and instead, 100 per cent of financing costs will be given as a basic rate tax reduction. This means that from April, landlords will pay income tax on the full amount at the basic tax rate of 20 per cent, with the option to claim back 20 per cent of mortgage interest costs as credit.
This could have serious implications for the Buy-to-Let market, if the expense of running a rental property becomes difficult to offset; some landlords may even look to sell their properties.
Capital Gains Tax
A number of major changes to the Capital Gains Tax (CGT) system are due from April. They include a reduction of payment deadlines, giving landlords just 30 days to pay the CGT on additional property sales. Currently a landlord’s annual self-assessment tax return would deal with this, and they would not need to pay the full amount until the end of the next tax year. Now, the amount remains the same, but if landlords sell for a profit, they must pay this tax immediately; failing to do so before the end of the 30-day window will incur penalties.
There will also be a reduction in the Private Resident Relief (PRR) exemption window. Previously, landlords selling a property that used to be their main residence were exempt from paying tax on the final 18 months that they owned the property. From April however, this payment window will be reduced to nine months.
Renters’ Reform Bill
This is yet to be approved but it looks like it will cover a number of proposed changes for the rental market.
One is the intention to repeal legislation which allows landlords to evict tenants in Assured Shorthold Tenancies without having to give a reason, which makes it difficult for landlords to repossess their homes early if they want to move in, or sell. However, to help landlords, the Government is also proposing to give them more rights to repossess if they have a legitimate reason.
Also in the Renters’ Reform Bill is a promise to introduce lifetime deposits for tenants, which are transferred along with the tenant. Some welcome the idea in principle, but there are fears that the system may be difficult to operate, particularly if deductions are required. Clearly, the devil is going to be in the detail and everyone is waiting to find out more…
While no law change is imminent, the Government is also now on a mission to encourage landlords to give tenants a right to keep a pet. The proposal would work on a case-by-case basis, and it is hoped that this will improve the quality of life for responsible tenants.
Here at Punch Robson, we love our pets very much, but needless to say this initiative is not proving popular with landlords, many of whom worry about the potential for damage and whether their tenancy deposits will be enough to cover it!
Finally, new regulations are being proposed to make landlords and agents responsible for ensuring that mandatory electrical installation inspections and testing are carried out by a qualified professional on all new tenancies from July 2020, and all existing tenancies from April 2021.
However, it must be said that the news isn’t all doom and gloom; here at Punch Robson we are off to a busy start this year in terms of the new conveyancing work coming in.
While some of the upcoming changes appear to create more difficulty for landlords, we’ve seen no sign of any downturn in the buying and selling market so far, which is of course encouraging. Ultimately, we will have to wait and see what Brexit, the Budget and future legislation brings.