New legislation in plans published in July 2018 could mean you have to give your tenants a minimum three-year term, including a break clause of six months. This is designed to help renters feel more at ease with financial security and put down roots in their community.
Tenants would be able to leave early. But if they did want to stay, they would have greater protection against eviction. This legislation is one of several options being considered to give tenants and renters more security.
No tenancy fees
A government bill is poised to end letting fees in England – they have been banned in Scotland already – which would mean that letting agents could no longer charge tenants fees for the following:
- Phone calls
- Anything else that takes up their time
These fees are typically around £200, though they can be as high as £700 depending on the agency. The Tenants’ Fee Bill is expected to become law in 2018 or 2019, and as a result, you should consider whether this would mean a letting agent expecting you as a landlord to pick up the cost of these fees.
You will also only be allowed to charge your tenants the following:
- A security deposit (refundable)
- A holding deposit (refundable)
- Default fees, for if they breach your tenancy agreement. For example, you can charge them for lost keys, or if they miss their rent payment
The bill also includes plans to introduce a cap to the holding deposit amount, set at one week’s rent, with more requirements on returning this deposit. You won’t be able to charge your tenant more than £50 for a tenancy change – such as the name(s) on the contract – unless you can prove that the resulting expenditure amounted to more.
From April 1 2018, new private properties for rent are generally required to have a minimum of an E on the Energy Performance Certificate rating scale. This will come into effect for existing tenancies from April 1 2020, and it will make breaches of this rule – renting properties with F or G ratings – unlawful.
If you breach this rule you’ll be given a warning so you can get your property up to scratch. But if you don’t do this, you may face fines and legal action.
At the moment, you’re able to get tax-free profits of £7,500, but this is going to change as a way of stopping landlords from receiving tax-free profits intended to incentivise people to let out spare rooms.
After potential new rules are in place, you’ll have to be present and resident in the property for at least some time during the letting period to get this money tax-free – this is known as the shared occupancy clause.
Mortgage interest tax relief
Until 2017, landlords could deduct their mortgage interest payments from their rental income, reducing the amount of income that would be taxed.
The government has decided to change this rule and is phasing in a reduction in the amount of interest that can be used to offset income tax.
In the current (2018/19) tax year you can set 50% of your interest against your rental income. This reduces to 25% in 2019/20 and will disappear completely from April 2020. From this point, landlords will receive a tax credit calculated at 20% of your mortgage interest.
This credit will reduce the final tax liability by 20% of your mortgage interest. The overall impact will be to increase the amount of tax paid by most landlords with mortgages.
Comparing landlords insurance
Buying property to let can be a good way to secure a regular income, however you should remember that being a landlord is a considerable responsibility. You’re in charge of maintaining the property, which means making sure it’s in a liveable condition as well as keeping it safe and green. You’re also required to provide a number of services for your tenants, and together all of this can add up.
Therefore it’s worthwhile taking out a landlord insurance policy that covers you for all the possible costs you might face, ranging from property maintenance and repairs to rent cover and possible legal fees. If you shop around for different policies, you’ll be able to compare them by the level of coverage they provide, the premium costs, and any other fees included.
However you should remember that a cheaper price isn’t always ideal – it’s better to look for a policy that offers adequate cover for everything you need, otherwise you might end up over-insured and paying too much, or under-insured and unable to claim.