Government issues new Covid-19 guidance for landlords and tenants

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The Ministry of Housing, Communities and Local Government’s (MHCLG) has published (27 November 2020) an updated version of its guidance document for agents, landlords and tenants setting out advice and information aimed at the private and social rented sector (PRS).

This guide applies to England only but there are some measures in the guide which also apply in Wales.

This is non-statutory guidance for agents, landlords and tenants in the private and social rented sectors which includes among other issues:

  • Measures relating to notices seeking possession as amended by the Coronavirus Act 2020
  • Health and safety obligations, repairs and inspections in the context of coronavirus (COVID-19)

The guidance is advisory and informs about recent changes to the law. All of this guidance is subject to frequent updates and should be checked regularly for currency.

National restrictions were in force in England until the beginning of the day on 2 December.

Following the national restrictions, the tiers of local restrictions have returned. See guidance on the local restriction tiers.

See also the guidance issued for Wales, Scotland and Northern Ireland

The guide covers landlord and issues which may arise during the Covid-19 outbreak including:

  • What to do about rent arrears
  • Advice around carrying out emergency repairs, access
  • Information on re-letting, property viewings and moves
  • Mortgage payments
  • Tenancy Deposits
  • Client Money Protection
  • HMOs
  • Anti-social behaviour
  • Dispute resolution and mediation
  • Serving notices
  • Possession claims and evictions, etc.

The government is urging all agents, landlords and tenants to abide by this latest government guidance on COVID-19.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Government issues new Covid-19 guidance for landlords and tenants | LandlordZONE.

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Why landlords are an easy target for the taxman

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Anyone with disposable income has a choice whether to spend that money on holidays and luxury goods or to save it. Arguably, there is a middle way: investing in property. The path of a landlord, if done right, can deliver a sustainable income well into your future, making it an attractive retirement plan.

However, far from being an easy way to guarantee income, investing in property is proving costly for many landlords. It seems, perhaps, that landlords have become an easy target in the eyes of the taxman as they have a physical tangible asset. 

Tax changes affecting landlords

Over the past few years, landlords have been hit with a series of tax changes that could seriously diminish their income. Here are the biggest recent changes that affect landlords:

  • Purchasing property as an individual vs company – It now makes more sense to buy property via a limited company rather than as an individual due to the tax breaks afforded to companies.
  • No more wear and tear allowance ‒ Previously landlords could include reasonable wear-and-tear expenses in their tax allowances for fully furnished rental properties.  This could be anything up to 10% of your net annual rental income. Now landlords can only claim for costs arising from replacing items that HMRC deem to be domestic items that have been subject to wear and tear in their properties. It only applies when the item is unusable and genuinely needs replacing – not just repurposed for some other use. 
  • Additional 3% stamp duty on second homes ‒ Building a portfolio of properties just became more expensive as the government clamps down on second homes, introducing an additional 3% stamp duty on top of an already hefty fee.
  • Reduction of the full mortgage interest relief ‒ From April 2020, landlords can no longer reduce their tax bill by deducting mortgage expenses from rental income. This has been replaced by a flat tax credit of 20% of mortgage interest payments.
  • Potential rise of capital gains tax ‒ While it is unclear what will happen when, it’s expected that Capital Gains Tax will rise in the coming years to bring it into alignment with income tax rates.

And, as if this wasn’t enough, HMRC are introducing a new way of tracking, calculating and submitting tax returns for landlords, known as Making Tax Digital (MTD), potentially causing further pain for Landlords. 

As part of the MTD regulations, taxpayers will need to submit their annual tax return along with four quarterly submissions using recognised MTD software. If you outsource everything to an accountant, it’s inevitable that your costs will go up as you will need to submit five returns a year. 

Get started with a free MTD account from APARI.

How can landlords rise above all these changes and still come out on top?

Despite the situation looking pretty gloomy for landlords, not to mention the challenges brought about by the coronavirus, there is light at the end of the tunnel.

By preparing now for future tax changes, while rapidly adapting to the recent changes, landlords can develop a long-term financial plan that will help balance the books.

Here’s a few ideas of what can landlords do to help themselves:

  • Keep good/efficient digital records ‒ With the new MTD regulations, tax records need to be kept constantly up-to-date. While this can be difficult to achieve, it is even more difficult to pull all your records together five times a year for your accountant to process. However, tax software designed to meet the needs of MTD, such as the free version of APARI, is now available, so you can register and get used to the process well in advance. What’s more, APARI has been engaging with HMRC to provide landlords with software which is easy to use and reduces the cost of using an accountant.
  • Prepare for longer-term tax planning – Where an accountant may be able to add value is in your long-term tax planning. With all the changes to the tax system that have recently happened or are planned for the near future, ensuring that you don’t overpay is going to become difficult. Your accountant should be able to help you formulate a long-term tax plan to ensure that you never overpay.
  • Plan for capital gains, inheritance and income taxes ‒ Part of your long-term tax planning needs to consider potential changes to the tax rate for things like capital gains, income and inheritance. While the situation is still evolving in response to the coronavirus lockdown, you can get regular updates as part of the APARI community or through your accountant.
  • Expect the government to introduce the payment of quarterly bills ‒ The APARI tax experts expect, from their conversations with HMRC, that the result of the new MTD regulations will be that landlords are expected to pay their tax bills quarterly. By getting ahead of the new MTD regulations, you can avoid being stung for two tax bills in one year, ensuring you have enough saved for your quarterly bills, if introduced.

To help minimise future pain, landlords should start their long-term financial planning now. Part of this plan will need to involve keeping good, digital records using MTD-eligible tax software to minimise accountant fees. By starting with MTD software now, you’ll be well-practiced and prepared for the tax changes. You can then engage your accountant in more value-added advice and long-term planning to avoid becoming an easy target for the taxman.

Get started with a free MTD account from APARI.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Why landlords are an easy target for the taxman | LandlordZONE.

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