2016 was a year of great change in the private rented sector especially for landlords, including increases in stamp duty. Industry expert Paul Shamplina chats with CEO of mydeposits and Hamilton Fraser, Eddie Hooker, about previous year’s events and upcoming changes in a review and predictions podcast that can be found here.
2017 looks set to be another year of upheaval, here’s our list of some important areas of change.
Mandatory Client Money Protection
There is conversation within the sector and especially the Government concerning ‘mandatory client money protection’ becoming legislation.
Client money protection is an insurance policy designed to protect clients’ money, such as rent, deposit or other monies, from theft or misappropriation by an agent. As it stands agents do not, by law, need client money protection, and unfortunately many landlords and tenants are still unaware that it exists. It is likely, in early 2017, that the Government will announce that client money protection will become mandatory throughout England, but it will unlikely to be made to the legislation before 2018. These changes will be positive in regulating the industry further and ensuring clients’ money is secure.
Concerning tax, there appears to be further changes in the New Year, especially as the government aims to review the private rented sector. The introduction of 3% stamp duty that has been added to the purchase of a second property has already increased the cost for landlords after it came into legislation in 2016.
As of April 2017, tax relief is also changing for landlords meaning that they are unable to use their income tax bills to offset interest only mortgage costs. Instead of being taxed on profit, landlords will now be taxed according to their annual turnover amount. Until now landlords could claim complete tax relief on mortgage interest payments, however, landlords can no longer take their mortgage interest away from their own rental income, now only permitted at a basic rate. If you are a higher rate taxpayer this may increase costs and for lower rate tax payers it could increase the tax bracket you fall under, for example, 20% tax earners may be pushed up to 40%.
The National Landlords Association (NLA) predicts that 440,000 landlords will see an increase in their tax bracket due to this change in legislation*. These changes will be tapered over a four-year period meaning that by 2020 tax relief will be at the basic rate.
Wear and Tear Allowance
Another change commencing in 2017 is the Wear and Tear Allowance. Previously there was a 10% allowance for fair wear and tear on furnished let residential property. This has now been removed and to be eligible for any tax deductions you must prove any outlay you have incurred in maintaining the property. You can no longer simply deduct 10% as standard.
For more information on Wear and Tear, check out our free guide here.
Banning of Tenant Fees
It was announced in late 2016 that the Government would be supporting the banning of all tenant fees after an advisory council has met to discuss these potential changes. Chancellor Philip Hammond however, suggested that this change should happen soon. While discussions may take place in 2017, changes will be unlikely to follow until 2018 at the earliest. For more details on how you can minimise the impact of banned tenant fees, check out our expert guide from Paul Shamplina here.
mydeposits’ aim is to support all landlords, agents and tenants and to help and assist professionalise the private rented sector – For more expert guidance, visit our resource centre here.