The cost of legislation

The cost of legislation: Landlords encouraged to get on top of new laws

  • Impact of new legislation being felt by the UK’s 1.75 million landlords
  • Stamp Duty changes have the greatest financial impact – with landlords buying a second property forking out an extra £6,500 in tax
  • Landlords failing to comply with new legislation could face fines of up to £30,000

With a raft of new laws introduced in recent years affecting those who own rental properties, Direct Line for Business is urging the UK’s 1.75 million landlords to brush up on their knowledge of the new legislation to avoid being stung by fines.

New research1 by the landlord insurer reveals the impact recent new legislation, including Stamp Duty Land Tax (SDLT) changes, the abolition of Wear and Tear allowance, tenants’ right to request energy efficiency improvements and mortgage tax relief, has had on Britain’s landlords.

The legislation that has had the biggest financial impact over the past year has undoubtedly been the changes to Stamp Duty Land Tax, which has added a further three per cent on all newly-bought buy-to-let properties.

Based on the average UK house price2 of £219,544, this has meant that any landlord purchasing an additional property will now have to pay Stamp Duty of £8,477, three and a half times more than the £1,891 that would previously have been paid.

Unsurprisingly, landlords in London and the South East have been hit the hardest by these changes, with Stamp Duty on second properties in the capital now standing at an average of £28,704, while Stamp Duty in the South East stands at £15,282.

Table One: Changes in Stamp Duty Land Tax, standard vs buy-to-let fees

Region Average house price (Dec 16) Standard Stamp Duty Stamp Duty on buy-to-let property Difference
London £483,803 £14,190.15 £28,704.24 £14,514.09
South East £316,026 £5,801.30 £15,282.08 £9,480.78
East of England £281,513 £4,075.65 £12,521.04 £8,445.39
South West £242,808 £2,356.16 £9,640.40 £7,284.24
West Midlands £181,328 £1,126.56 £6,566.40 £5,439.84
East Midlands £176,790 £1,035.80 £6,339.50 £5,303.70
Yorkshire and Humberside £154,985 £599.70 £5,249.25 £4,649.55
North West £152,259 £545.18 £5,112.95 £4,567.77
Wales £148,177 £463.54 £4,908.85 £4,445.31
Scotland £141,553 £331.06 £4,577.65 £4,246.59
North East £128,631 £72.62 £3,931.55 £3,858.93
Northern Ireland £125,480 £9.60 £3,774.00 £3,764.40
United Kingdom £219,544 £1,890.88 £8,477.20 £6,586.32

Source: Direct Line for Business, 2017

Further to this, the changes to Mortgage Interest Tax Relief introduced in April this year restrict relief for finance costs on residential properties to the basic rate of Income Tax, with the level falling by 25 per cent every year between 2017-18 and 2019-20. Direct Line for Business’s analysis3 of average salaries, rent and mortgage repayments across the UK reveals that landlords could be set to pay an extra £156 in tax in the 2017-18 tax year compared to the previous year.

Landlords in the South East are most likely to be affected, with the decrease in tax-free allowance meaning that their income jumps into the upper tax bracket, resulting in additional annual payments of £1,625. London landlords, who already pay an estimated £9,381 in income tax, are set to spend an additional £898 as a result of this change.

Table Two: Changes in landlord income tax, 2016-17 vs 2017-18

Region Total tax paid, 2016-17 (salary and rental income) Total tax paid, 2017-18 (salary and rental income) Change in total tax paid, 2016-17 vs 2017-18 Percentage change in total tax paid
South East £4,500 £6,124 £1,624 36%
East of England £4,200 £5,142 £942 22%
East Midlands £2,696 £3,229 £533 20%
South West £2,934 £3,372 £438 15%
West Midlands £3,082 £3,511 £429 14%
Wales £2,770 £3,121 £351 13%
Scotland £3,160 £3,544 £384 12%
Yorkshire and The Humber £2,796 £3,139 £343 12%
North West £3,137 £3,490 £353 11%
London £9,381 £10,278 £897 10%
Northern Ireland £3,087 £3,384 £297 10%
North East £2,826 £3,067 £241 9%
United Kingdom £4,200 £4,356 £897 10%

Source: Direct Line for Business, 2017

Other new laws that have come into play recently include the Houses in Multiple Occupation and Residential Property Licensing Reforms, where landlords can be fined £30,000 if they fail to licence an address; the Right to Rent laws, in which a landlord can be liable of fines up to £3,000 if they do not carry out the required checks and have the right documentation for their tenants; and the letting agent fee ban, which critics believe mean estate agents will simply pass on fees of up to £1,000 to the landlords themselves.

The Energy Efficiency (Private Rented Property) Regulations for England and Wales, set to come into effect from April 2018, also mean that landlords must ensure that properties they rent in England and Wales reach at least an Energy Performance Certificate (EPC) rating of E before granting a tenancy to new or existing tenants. Any failure to adhere to this new law could result in a fine of up to £5,000 or 10 per cent of the rateable value of the property. However, analysis by Direct Line for Business4 reveals that updating the energy efficiency of a property can result in cost savings of up to £1,000 per year.

The Energy Efficiency (Private Rented Property) Regulations for England and Wales, set to come into effect from April 2018, also mean that landlords must ensure that properties they rent in England and Wales reach at least an Energy Performance Certificate (EPC) rating of E before granting a tenancy to new or existing tenants. Any failure to adhere to this new law could result in a fine of up to £5,000 or 10 per cent of the rateable value of the property. However, analysis by Direct Line for Business4 reveals that updating the energy efficiency of a property can result in cost savings of up to £1,000 per year.

In good news for landlords, recent research conducted by Direct Line for Business4 revealed that landlords across the UK expect to see an increase in rents of four per cent in 2017. On the average annual rental income of £10,740 this represents an increase of £386.64 throughout the year.

Christina Dimitrov, Business Manager at Direct Line for Business said: “Being a landlord in the current climate can be a profitable business, especially if there is a demand for rental properties as we’ve seen in recent years. However, with so many changes taking place, and with more on the horizon it’s essential for any landlord to be fully up to speed with legislation, as the penalties for breaking the law can erode any potential profits. We understand that one of the challenges for landlords is having the correct legal documents in place. To make it easier for landlords, Direct Line for Business offers a legal documents service to all policyholders, which can help with the creation of vital legal documentation needed when renting a property.”

For more information on Direct Line for Business Landlord Insurance click here: https://www.directlineforbusiness.co.uk/legal-documents/landlord

Notes to editors

1 Direct Line for Business’s research conducted on key new legislation launched since April 2016 that could have a financial impact on landlords. Laws covered by this analysis include:

  • Stamp Duty Land Tax
  • Mortgage Interest Tax Relief
  • The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015
  • Houses in Multiple Occupation and residential property licensing reforms
  • Letting Agent Fee ban
  • Right to Rent

2 Figures taken from the ONS UK House Price Index summary: December 2016, published 14th February 2017.

3 Figures based on the assumption that landlords earn the median wage (as reported in the ONS’s Annual Survey of Hours and Earnings 2016) and charge the average rental amount (as reported in the February 2017 HomeLet Rental Index) for their region. Average mortgage payment rates courtesy of the ONS’s Family Spending in the UK dataset, published 16th February 2017, “Table 2.9: Expenditure on mortgages by mortgage holders”. This calculation also takes into effect the increase in the basic tax rate 20% band from £32,000 in 2016-17 to £33,500 in 2017-18.

4 Figures based on the installation of a new boiler, loft insulation, energy monitor, double-glazing and cavity wall insulation. Cost saving figures courtesy of the Energy Saving Trust.

5 Findings from the Direct Line for Business Landlord Confidence Index, conducted amongst 275 UK landlords between 3rd and 7th February 2017. Average annual rental amount for 2016 based on the February 2017 HomeLet Rental Index.

For further information please contact:

Citigate Dewe Rogerson
Antonia Green
Tel: 020 7282 2967
Email: antonia.green@citigatedr.co.uk

Direct Line Group
Jade Trimbee
PR Manager
Tel: 01372 839 452
Mobile: 07825 315 931
Email: jade.trimbee@directlinegroup.co.uk

Direct Line for Business

Launched in 2007 Direct Line for Business provides a range of insurance products for the small business sector direct by phone or online.

Direct Line for Business insurance policies are underwritten by U K Insurance Limited, Registered office: The Wharf, Neville Street, Leeds LS1 4AZ. Registered in England and Wales No 1179980. U K Insurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Direct Line for Business and U K Insurance Limited are both part of Direct Line Insurance Group plc.

Customers can find out more about Direct Line for Business products or get a quote by calling 0345 301 4827 or visiting www.directlineforbusiness.co.uk

Landlord Insurance Press Release

Added: 5th Sep 2017