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The Complete Guide For Buy-To-Let Landlords

June 4, 2019

Landlords have had to deal with a barrage of changes over the last few years, and, unfortunately, 2019 is no different.

As of the new tax year, (6th April 2019), landlords’ tax bills have changed, mortgage interest tax relief is being phased down, and we’ve also seen higher allowances for income and capital gains kick in. And as if that wasn’t enough, there’s also a host of new regulatory and legislative changes to be aware of.

So, what exactly do landlords need to know?

Here we’ve listed all the important new changes that UK landlords need to be aware of for the 2019-2020 tax year, and also summarised the potential impact of these changes.

1. Letting Fees Ban

What is it?

Historically, landlords (and agents) have been able to charge tenants for administration fees. These fees cover necessary checks and administration costs such as obtaining references, credit checks, plus tenancy renewals. The Citizens Advice Bureau recently estimated this amount to around £400.

However, from 1 June, estate agents and landlords will be banned from charging tenants any fees in relation to letting out the property. Essentially, renters will now only be responsible for paying rent, utility bills, and a deposit, which is capped at five weeks if the annual rent is less than £50,000.

Remember: If a tenant requests a change to their rental agreement, for example if they want to change a flatmate’s name on the lease, from 1st June onwards this will be capped at a maximum of £50 or what is deemed as “reasonable costs”. The same goes for when a tenant loses keys or is late on rent; only “reasonable costs” can be charged and they must be confirmed in writing.

How will this affect landlords?

Essentially, let-only landlords or those who manage the entire letting process themselves will now have to cover these costs, rather than passing them onto the tenant. The Association of Residential Lettings Agents (ARLA) believe that this will result in a 20% reduction in revenue.

At Portico, we have been planning for this change for over a year. We have had a programme of communication going out to our landlords in this time, who have also been issued with new terms and conditions which incorporate the changes in TPO code of practice.

In a recent ARLA-led survey, nearly nine in ten letting agents believed that rents will increase as a result. Personally, we don’t believe that rents will rise any more than the market rate. Vetting and securing a top tenant is so important in times when profit margins are being squeezed, so now is certainly not the time to ditch your agent. Professional guidance is exactly what is required.

How can landlords offset these costs?

As we just mentioned, we don’t believe raising rents is the answer. A better idea may be to get your property managed by an agent who can increase tenant retention and therefore reduce referencing costs. At Portico, we offer a rental guarantee as part of our Concierge package.

In the light of Brexit and these legislative changes, it’s imperative that landlords adapt a pragmatic approach to investment, whether that’s through minimising void periods or even utilising Airbnb as a short-term solution when the property is empty. You can find out more about this here.

Phillip Hammond

2. Increased Pressure on HMO Licensing

What is it?

In October 2018, the government removed the three-storey rule from HMO regulations, and instead insisted that a property is now defined as a Home of Multiple Occupancy (HMO) if five (or more) tenants live there from two (or more) unrelated households. If your rental property falls under this classification, you need to obtain the right license and to adhere to tighter requirements.

According to many councils around the UK, there are still thousands of landlords without the proper license. There has also been some press around a Richmond Landlord who had been prosecuted for not having a proper HMO licence for his property, despite the fact that he believed he made a proper application.

It’s imperative that new landlords understand the licensing process and also fill in the necessary paperwork correctly, or there is the risk of fines and even imprisonment.

How will this affect landlords?

Landlords should immediately check whether or not they fall within the HMO scheme requirements (we are happy to help you and can let you know instantaneously)!

Licenses last for up to five years, and can be obtained via the gov.uk website. The application is rather lengthy and needs to be watertight, so we are able to complete this on behalf of a landlord at a small administrative cost. Please get in touch with us if you require this service.

3. Deposit Rule Changes

What is it?

From a big change to a simple one: From 1st April 2019, all letting agents were required to protect client (landlord’s) money through a government-approved scheme. This includes both rental income and tenancy deposits.

Known as Client Money Protection, this is brilliant for landlords because all their rental income is protected.

How will this affect landlords?

Portico Landlords will now have complete peace of mind that their rental income and deposits are protected and tied up to an appropriate scheme. If you’re not a Portico landlord, we recommend having a conversation with your letting agent to ensure you’re protected.

4. Beginning of the End of Mortgage Interest Tax Relief

What is it?

We have written extensively about the changes to mortgage tax relief, but now that we’ve entered a new tax year, a refresher of the rules seems sensible.

Anybody who became a landlord before April 2017 will remember that it was possible to reduce their tax bill by deducting ALL mortgage interest off rental income.

However, under the new rules, landlords will progressively lose tax relief on their buy-to-let mortgage costs each year until April 2020, where they will no longer be able to deduct ANY mortgage interest costs from taxable profits (if the property is owned by an individual).

However, there is a positive: from April 2020, a 20% tax credit will be introduced.

  • In the 2017-18 tax year, landlords could claim 75% of their mortgage tax relief
  • In the 2018-19 tax year, landlords will be able 50% of their mortgage tax relief
  • In the 2019-20 tax year, landlords will be able to claim 25% of their mortgage tax relief
  • From April 2020, landlords will no longer be able to deduct their mortgage costs from their rental income. All of the rental income earned will be taxable, and landlords will instead receive a 20% tax credit for their mortgage interest.

How will this affect landlords?

Firstly, this will not affect landlords who are basic rate taxpayers (earning less than about £40k). Instead, it will only affect landlords who earn above the basic rate who operate as individuals (or couples), rather than through a business. We have given a working example of how this would affect a higher rate tax-paying landlords’ potential income here.

How can landlords offset these costs?

There are things landlords can do to recuperate these costs – including these 10 ways to cut your tax bill. However, there’s not one right answer, and it’s important to remember that the viability of each of the following options is dependent on personal circumstances:

1. Set up a company

In theory, landlords can continue to deduct mortgage interest relief by setting up a company and selling their properties to it.

Click here to read our Landlords Guide to Incorporation.

However, this will trigger Capital Gains Tax and Stamp Duty liabilities, so this needs vital research – as even with the tax saving, it may leave some landlords much worse off.

2. Remortgage

We believe – and other experts do, too - that a sensible option for landlords is to try to cut their interest costs by remortgaging.

Buy-to-let mortgage interest rates have fallen significantly in recent years, so deals currently on the market may well be substantially better than on products arranged a few years ago. We recommend speaking to our mortgage expert, Paul Tait, Director of Portico Finance , for more information on this.

Instant Valuation

3. Get Your Property Revalued

With substantial increases in property prices in London in the last five years – in some areas more than others, of course - another tip is to get your rental property revalued. This will make your lender recalculate your LTV, and a lower LTV means a better interest rate and a larger choice of lenders.

5. Personal Allowance Increase

What is it?

We have some good news for landlords! Despite mortgage interest being phased out, personal allowance is increasing in the 2019-20 tax year, which means you now need to earn £12,500 before paying tax. (This was previously £11,850). Additionally, the High Rate tax threshold (40%) has increased from £46,350 to £50,000.

Remember: For those who earn over £100,000, every £2 over the limit will incur a £1 loss of personal allowance.

How will this affect landlords?

In short, landlords will have to pay less tax and be able to keep more of their profits.

6. Increase in Capital Gains Tax Allowance

What is it?

For landlords considering selling their investment property, we have some good news: The government has bumped up the Capital Gains Tax allowance for the tax year 2019-20, increasing it from £11,700 to £12,000.

How will this affect landlords?

Landlords will be able to get more tax-free profit from their property. However, remember that the Capital Gains Tax rate is higher for landlords than single homeowners, (18% for basic-rate taxpayers, and 28% for higher rate taxpayers).

Remember: For joint assets with a partner or spouse, the limit will now be £24,000 before paying any tax.

If you’re thinking of selling an investment property, we may be able to wipe your fees completely! Give us a call on to find out more, or get an instant valuation here: https://www.portico.com/valuation/

7. Changes to Private Residence Relief from April Next Year

What is it?

In the 2018 Autumn Budget it was revealed that there will be some changes to Private Residence Relief rules for 2020. Currently, if you lived in your rental property before letting it out, you get Private Residence Relief when you come to sell. This means you don’t pay any Capital Gains Tax for the time you lived in the property, plus an extra 18 months after you moved out. Once the 18-month period had passed, the bill could be reduced by up to £40,000 of lettings relief.

But under the new rules, this has been slashed in half, with landlords now being able to claim for just nine months after the date they moved out.

How will this affect landlords?

For landlords adamant that they want/need to sell a former home, we recommend doing so before April 2020. In this uncertain sales market, it’s vital you choose a proactive agent who understands the market. Get in contact today to find out how we can help!

Kyance Mewsunsplash-logoBruno Martins

8. Potential End of Right to Rent

What is it?

The Right to Rent scheme was introduced in the Immigration Act 2014 as part of the government’s reforms to build a fairer and more effective immigration system. Essentially, the scheme ensures that UK landlords do not rent a property to someone in England if they do not have the right documents.

But it quickly became apparent that the scheme wasn’t making the PRS fairer for those not from the UK. After the new rules were announced, 51% of landlords surveyed for a report stated that they were now less likely to consider letting to foreign nationals from outside the EU.

More recently, the High Court has come to the decision that the Right to Rent scheme breaches human rights laws. According to Sky News: “A judge said the Right to Rent policy caused landlords to discriminate against ethnic minorities and foreign nationals who had the legal right to rent in the UK.”

How does this affect landlords?

Currently, landlords (or letting agents if they manage the property) are required by law to check visas to ensure a tenant can live in the UK. However, we could soon see changes to this.

Of course, no changes have been announced yet, but there may be a removal of the Right to Rent scheme and an introduction of a new one. We will keep you posted as soon as we know more.


If you would like to find out more or you have a property you would like to get a valuation on please give us a call on 0207 099 4000, drop us an !email email or try our instant valuation tool to get a value in just 60 seconds. 
We already know how much your rental property is worth. Type your postcode to find out and get an online valuation within 60 seconds.

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