Anyone considering becoming a buy-to-let landlord in 2020 should make sure that they understand both the overall market landscape and the relevant legislation. They also need to commit to keeping up-to-date with changes to them.
With that in mind, here is a quick guide to some of the key points new buy-to-let landlords need to know.
Mortgage tax relief is no more
This is another point of which you may have been aware as the government has been in the process of phasing out mortgage tax relief. This year, however, is the year when it finally ceases to exist in any form.
Because of this and because of the uncertainty over Brexit, landlords may wish to think about whether or not they should update the mortgages they use.
In particular, they may wish to think about whether to use a repayment mortgage or an interest-only mortgage and, in either case, whether they want to opt for a fixed-rate product or a variable-rate product. Fixed-rate products are not necessarily cheaper (in fact they can be more expensive), but they do offer security.
Private residence relief is curtailed
Under current rules, if a landlord lives in a property, then moves out and uses it as a rental buy-to-let property, then sells it, they can claim Capital Gains Tax relief for the time in which they lived in the property, with a maximum reduction of £40K.
As of April 2020, a landlord will have to live in the property (with their tenant) to claim the relief and the extent of the relief will be proportional to the amount of the property they keep for their personal use. For example, if a landlord lets out an unused bedroom, which comprises 25% of the property, then the landlord will receive 75% CGT relief.
This is entirely separate to “final period of ownership relief”, which allows people to claim CGT relief on a property which was their main residence even if they no longer lived in it at the time of the sale. In April, the period during which a person can claim this relief will be reduced from 18 months to 9 months.
Energy efficiency targets are being extended
At this point, all landlords should work on the assumption that any tenanted property will need an energy efficiency rating of E or better. There are a few exceptions and there is a cap on how much landlords are expected to spend to achieve this (currently £3,500), but that should be your default assumption. It’s also highly likely that standards will increase over the coming years, quite possibly going as high as C by 2030. Scotland has already committed to a target of D by 2025 and is looking at C by 2030.
Mandatory electrical safety checks are set to be introduced
This has been on the cards since July 2018 and the start date has still to be announced, so landlords will need to keep their ears to the ground to ensure that they comply as soon as they are required to do so.