Evicting tenant’s girlfriend?

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I had a tenant who appears to have left the property three months ago, at least that’s when he stopped paying rent or answering his phone.

The house is still occupied by a woman who wasn’t on the original tenancy and I assume she’s his girlfriend.

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Average Rents rose by just 0.7% in 2017

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Rent Increases 2017:

A recent report published by Rightmove shows that rents across the nation, but excluding London, rose by just 0.7% in 2017.

This is a much slower rate of increase that the industry has experienced over recent years and compared to the rises in 2015 (+3.7%) and 2016 (+3.0%), it’s at a snail’s pace.

Cumulatively, over the last three years, the Rightmove figures show that rents have increased, on average across the country, by 7.6%. With that rate of increase equating to over £50 per month for the average renter, and with wage increases largely stagnating, a slower pace of increase is hardly surprising.

On the other hand, the good news for London landlords is that new rental properties coming to market in London are seeing rising rents again, the first increase in the annual rate of growth since the start of 2016.

This uplift in London comes after a market readjusting following an unsustainable annual rise of 8% recorded in 2014. The subsequent fall in London is put down largely to stamp duty increases on high end properties and a surge in rental supply in 2016 from landlords rushing to buy-up properties ahead of the 3% stamp duty surcharge on second homes, after April 2016.

The overall regional trend is masking some of the key commuter areas in the South East that continue to perform strongly, with Farnham in Surrey coming top for rental price growth in 2017, up 9% on 2016.

Rightmove Director and housing market analyst Miles Shipside says:

“Nationally rents have been holding pretty steady over 2017, retaining the 3% plus rises seen in both 2015 and 2016, and adding a more modest 0.7% in the last twelve months. Increasingly stretched tenant affordability, and the surge of buy-to-let property supply beating the stamp duty tax hike deadline, have acted together to mute landlord pricing power.

“In contrast, after a few years of falling rents in London they’re back on the up again, due to a combination of tightening stock available to rent and strong demand.

“While the 2017/2018 tax year will see the start of the government’s changes to tax relief on buy-to-let mortgages, we don’t think this first phase will have that much of an effect on many landlords’ portfolio decisions until another year down the line.

“From speaking to some landlords they’re unlikely to make any decisions to sell up until they see in real-time how much of an impact it has on their finances, with many choosing to take a wait and see view rather than looking at short-term gains or losses.

“However, agents report that there are some highly-geared landlords with large loans looking to reduce their exposure to loss of tax relief by cashing in and selling some properties.”

The National Picture

Image by Rightmove

Rightmove Summary: Pace of annual rent rises now lowest since 2014

• 7% annual rate of increase in national asking rents (excluding London) in 2017, the lowest since 2014
• Asking rents in London ended the year 1.2% higher than at the end of 2016, the first time the annual rate in the capital has been in positive territory in nearly two years
• South East and Yorkshire and the Humber are the only two regions to end 2017 with asking rents down, while the North East saw rents rising at the highest rate, up 3.3% on 2016
• Farnham in Surrey recorded the highest rental growth outside London at 9% in 2017, followed by Corby in Northamptonshire, up 8.2%

Government Statistics

Relevant figures produce by the Office of National Statistics (ONS) show:

• Private rental prices paid by tenants in Great Britain rose by 1.4% in the 12 months to November 2017; this is down from 1.5% in October 2017.
• In England, private rental prices grew by 1.4%, Wales also saw growth of 1.4% while Scotland saw rental prices increase by 0.2% in the 12 months to November 2017.
• London private rental prices grew by 0.6% in the 12 months to November 2017, that is, 0.8 percentage points below the Great Britain 12-month growth rate.

Index of Private Housing Rental Prices, Great Britain: November 2017

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Are Ltd companies excluded from SLDT relief for 1st Property?

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My client has just set up a new Ltd Co with which they wish to buy and manage several rental properties.
They are using a new solicitor to do the conveyancing who is supposed to be an expert in Ltd companies and  buy to let’s.

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20% of landlords plan on selling up

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The National Landlords Association’s (NLA) latest research shows that 20% of its members plan to reduce the number of properties in their portfolio in the next year – the highest level of intended property sales in 10 years.

The NLA believes this is due to recent tax changes

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New EPC rules set To upset the PRS as well as me!

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From April 2018, landlords of privately rented domestic and non-domestic property in England or Wales must ensure that their properties reach at least an Energy Performance Certificate (EPC) rating of E before granting a new tenancy to new or existing tenants.

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Letting fees ban on hold until at least Spring 2019

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Breaking News – Letting Fees:

The newly renamed “Ministry of Housing, Communities and Local Government” (MHCLG) headed by Sajid Javid has confirmed that a letting fees ban will not come into force before the Spring of next year.

In written communicate to the Select Committee hearings, currently scrutinising the draft legislation, and also to the National Approved Letting Scheme (NALS), MHCLG has said that it will be at least 15 months before any lettings fee bad can be introduced.

The draft legislation, which was introduced by Sajid Javid last November, was given a rough ride by industry representatives at the hearing Monday. It will now go proceed to a third reading in the House of Commons before moving to the Lords.

MPs heard on Monday from the University of York’s Centre for Housing Policy and Shelter that a letting fees ban could easily lead to higher rents when the equivalent of the fees is added to tenants’ rents, spread out over the length of each tenancy.  The fear was also expressed that such a ban could result in the reduction of the quality of rented accommodation, as landlords react by “tightened their purse strings”.

Isobel Thomson, CEO of NALS told The Negotiator industry journal:

“We’re pleased to see more clarity on the timetable for implementation of the ban – it’s much needed for our industry and something NALS has long called for.

“While the Bill aims to create a fairer and safer PRS for all, NALS doesn’t believe this will deliver what the government aspires to and risks doing real damage to the PRS.

“NALS urges government to use this time to fully assess the impact of the Bill. It is crucial that government look again at the proposals and consider tenant fees in a broader, coherent framework of regulation for the PRS.

However, ppeaking in response to the announcement James Davis, founder of online letting agent Upad.co.uk and himself a portfolio landlord, commented:

“Ever since the proposed ban on charging upfront fees to tenants was announced in the 2016 Autumn Statement, there’s been an air of ‘will they?  won’t they?’, not to mention, the ‘when will they?’.

“Whilst today’s announcement that it’s unlikely to be implemented before the Spring of 2019 provides a certain level of clarity, the fact remains that there are still many mixed messages around this move.  Indeed, some within the industry still believe it’s likely to come in to effect before the end of this year.

“Landlords, however, simply can’t afford to not be prepared for what lies ahead.  In my experience, there’s a certain amount of ‘head in the sand’ mentality around the impact that this ban could have, both amongst letting agents and landlords.

“Unfortunately, many headlines focus on how rents will increase once this legislation is implemented but the reality for landlords is that this needn’t be the case.  Most private landlords don’t, in fact, charge excessive upfront costs and by simply taking the time now to consider how else they can manage their costs, they’ll be assured of being prepared for the fees ban, whether that happens, this year, next year or indeed at all.”

A petition opposing the ban can be accessed here:  https://petition.parliament.uk/petitions/206569

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Do we need to pay SDLT changing to tenants in common?

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I am quite confused with SDLT tax. Here is our situation,

My wife and I own two buy to let properties (50:50 split joint tenant) at the moment. I am thinking of changing to tenants in common with 99:1 split.

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Blighted as a landlord after major claim?

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After a pipe leak caused a £130k claim (not quite yet settled) I find myself unable to find tenanted insurance. The letting agent insists on landlord insurance and my obligation to provide it is written into their standard tenancy agreements.

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Extortion to pay their own management company!

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I had to review the service charge breakdown for two apartments in one development this year, as this and last year service charges have risen to almost double from all previous years.

What I found is interesting and these are the biggest items;

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What is an Allowable Expense?

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Tax Return 2016-17:

With some costs it’s very easy to decide: a repair to a drain, downspout or roof tile are all allowable expenses, but what about replacing a broken single glazed window with a new plastic frame and double glazing, what about decorating and installing a new kitchen before the property is let?

Before you can decide on these matters in accord with the HMRC rules, the actual situation needs to be defined. For example, the rules differ if the landlord is not resident in the UK, if the property business is run as a company, or if the properties are let as holiday homes, as opposed to conventional residential lettings.

Where the property is owned jointly between a married couple or civil partners, then income and expenses must be split on a 50:50 basis, but if the property is owned unequally then HMRC form 17 “declaration of beneficial interests in joint property and income” must be completed. On the other hand, where joint owners are not married or civil partners, the income can be split any way they choose.

When the letting business consists of more than one rental property, all income and expense are pooled as one business operation, and any losses incurred in the early years can be carried forward and set off against future profits.

The “Wholly and Exclusively” test

You cannot claim expenses for items which are not used “wholly and exclusively” for the letting business. For example, the landlord’s insurance policy, the letting agent’s fees, or service charges on a leasehold are all obviously only for the business. However, purchasing a computer, or tools and equipment, such as an electric drill, will not pass the test as these will also be available for personal use.

The capital expenditure test

Capital expenditure is generally defined as spending on a fixed item in or of the property. An asset or improvement of “enduring benefit”, which increases the value of a property, one which lasts for more than one accounting period. This would usually be more than one fiscal year or 6th April to 5th April. Capital expenditure therefore is not allowed as an expense (revenue) item to be claimed against annual income, but rather something to be set-off against capital gains when the property is eventually sold.

So, whereas repairs to existing items would usually pass the capital expenditure test, improvements generally will not. We say generally will not, as there are some instances where a technical improvement could be allowed. The example used above for replacing a single glazed window with a modern double glazed one may be a case in point. A rotted window frame gives the landlord no choice but to replace, but if the only option is a new modern double glazed window, and these are now a minimum legal requirement, then this would usually be allowed. But, in the eyes of HMRC, every case is judged on its merits and there are many “grey” areas between repairs and replacements / improvements.

Generally, any fitted item added which was not there before, for example, a conservatory, is capital expenditure. Any like for like replacement is allowed, but where it constitutes an improvement the expense may have to be apportioned. For example, replacing a wooden worktop with a marble one would be an improvement on the old ones, so only a portion of the cost can be claimed, unless it can be shown beyond doubt that it is impossible to replace like for like.

It is very important to keep long-term records and documentation for capital expenditure as these items can be claimed against capital gains when the property is eventually sold, to reduce Capital Gains Tax ((CGT) liabilities.

Repairs and Maintenance or Replacement test

The HMRC definition of maintenance and repair is “work that restores an asset to its original condition”. This may sometimes means replacing part of the item within the property or as part of the structure, for example, kitchen units or the guttering respectively. However, this is on a like-for-like basis as explained above.

Any work the landlord does personally, or is the subject of an insurance claim, unless there has been a contribution, cannot be claimed against income. Typical maintenance and repair items would include:

• Broken fixture items such as toilets, sinks, baths, showers, so long as they are like for like replacements.
• Plumbing leaks and any water damage done, such as re-decorating.
• Replacing a broken boiler, radiators and heating system repairs.
• Outside work including ridges, flashing, gutters, chimneys and roof tile repairs. Treating for wet and dry rot and dampness.
• Regular maintenance items such as carpet cleaning, decorating and outside items such as painting, and broken windows and doors are all allowable expenses.
• A worn-out kitchen replacement can be classed as a repair providing the replacement is like-for-like.

An important principle is that the initial purchase of non-fitted domestic items such as furniture and appliances is not allowed as an expense item, but their like-for-like replacement is.

Now the 10% wear and tear allowance has gone items must be claimed for on a one-off basis, but whereas before the house had to be fully furnished, this is no longer a requirement. Domestic items that replacements can be claimed for include:

• Any movable furniture, including chairs, settees, beds, freestanding wardrobes etc,
• Soft furnishings such as carpets, curtains, cushions, linen, other floor coverings,
• Household appliances, including washing machines, fridges and freezers, TVs.
• Kitchenware such as Sause pans, crockery and cutlery.

All replacements items must be of a similar value, supported by a purchase invoice of the actual cost to the landlord, and the item must be available for use in the property permanently. Any improvement or “betterment” involved will not be claimable.

The “Grey” areas between Capital and Expenses

Items replaced with better (more expensive) replacements have an element of capital and revenue expense in them, therefore betterment will be involved.

With a long-leasehold property, a lease extension puts value on the property so is classed as capital expenditure, but if the extension is for 50 years or less, this can be claimed as an expense item.

With most of the items mentioned above it is routine to claim against rental income for these, but it’s a different matter when setting-up a new rental house, when then all items of initial expenditure are added to the asset itself as an initial purchase – a capital item – and therefore not allowable as an expense. This will be covered in the next (No 3) article.

This is the 2^nd in a series of articles designed to help landlords with their book keeping and self-assessment tax return for the tax year April 6^th 2016 to April 5^th 2017.

The Self-Assessment Tax Return, HMRC Form SA100, and Property income supplementary – HMRC Form SA105 – available here

Declaration of beneficial interests in joint property and income – HMRC Form 17

Filing your tax return online here

Free LandlordZONE Excel Tax workbook tool – download it here

Next Article in the series – What is an Allowable Expense?

HMRC is increasing its targeted compliance activity across the private rented sector through taskforce activity – see HMRC – Tackling the Hidden Economy

HMRC says it is encouraging those who have been non-compliant to come forward through activities such as the Let Property Campaign

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