Property News Update - January 2022

New energy rules too hot to handle for homeowners

Peers have slammed the wording of new energy efficiency laws. Deemed too hard for property homeowners to understand, they want civil servants to rewrite the guidance.

The House of Lords secondary legislation scrutiny committee complained to the Department of Levelling Up and Housing. This complaint was about the jargon surrounding the Building Regulations (Amendment) (England) Regulations 2021. Additionally, they sent a memo to the department asking for help in interpreting the documents.

The committee criticised the draft regulations, attacking an explanatory memorandum for, assuming an extensive understanding of the current building regulations and how they are being developed and does not provide a proper stand-alone explanation of the full effects of the instrument or how the changes are expected to operate.

The peers said homeowners should not have to look for other sources of information about the proposed changes and that technical details should be clearer.

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What next?

Committee member Lord German said: For an explanatory memorandum to fulfil its purpose, it must provide Parliament, those affected by changes in the law and the wider public with a clear and accessible, stand-alone explanation of the effect of an instrument and how it is intended to operate. The new regulations fail on this point and need to be revised.

‍The regulations cover a new method of calculating energy efficiency, new rules relating to heating in homes, ventilation standards and providing electric vehicle charging points. They are due to come into force from June 15.

Second-home property tax loophole closes

A landlord tax loophole is closing for holiday let owners in England.Current rules allow property owners to avoid council tax and business rates by declaring their homes are self-catering holiday lets.

This declaration categorises them as business premises, subject to rates rather than council tax.But small business rates relief exempts business premises if they have a rateable value of £12,000 or less. Government figures reveal this lifts 97 per cent of England's 65,000 holiday lets out of their rates liability.

Now, Housing Secretary Michael Gove is demanding holiday let owners prove their properties are business premises from April 2023. Under the new rules, owners will pay council tax if they cannot show the property was:

• Let for 70 days or more in the year to genuine holidaymakers
• Available to let for 140 days in the year, for example, advertised in a brochure or online

The measure follows years of lobbying by councils across the UK claiming holiday homes that stand empty for most of the year are a strain on services because they neither pay council tax or rates.

Gove said: The government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities.

However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost. The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.

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Forgotten tax rule for tenants

No one seemed to bother about a tax rule that has laid gathering dust for 20 years. Until a letting agent let the cat out of the bag. When stamp duty morphed into stamp duty land tax in 2003, a clause in the legislation demanded that a renter pay stamp duty when the rent paid to a landlord reaches £125,000 or more.

On reaching this amount, the tenant should pay stamp duty at a rate of 1 per cent of annual rent.

Director Marc Von Grundherr of London letting agent Benham & Reeves gave the example of an average monthly rent in London of £1,597 a month totalling an annual payment of £19,164. Reaching the £125,000 threshold would take around 6.5 years and trigger a stamp duty bill of £192 a year.

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Labour plans special tax for landlords and investors

Labour's Shadow Chancellor Rachel Reeves may have lost her party a few million votes. By revealing a plan to make investors dig deeper to pay more tax.The proposals are likely to be unpalatable for buy to let landlords and stock market investors who already have more complicated tax affairs than most people.Now, they face the prospect of an extra layer of tax if Labour should win the next General Election.

However, in a speech to party faithful in Bury, Greater Manchester, she hinted now was not the time to raise taxes as families struggle with soaring energy prices driving up the cost of living. We've said that it's not right that the only people who are being asked to contribute to the health and social care levy are those people who go out and work every day and the people who employ them, she said.‚

If you get your income from stocks and shares and dividends or a portfolio of buy-to-let properties, then you pay no additional tax whatsoever in this health and social care levy. We will set out our plans ahead of a general election, but it's not right just to ask those people who go out to work for a living to pay higher taxes, especially at a time when the prices of everything are going up.

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Property Taxes

Landlords already pay some taxes at an enhanced rate. Both land duty stamp tax and capital gains tax have landlord surcharges. Three per cent extra on top of the standard stamp duty rate and 18 and 28 per cent CGT rates compared with 10 and 20 per cent for non-investment property transactions.

Individual landlords are also taxed on property business turnover rather than profits. While higher and additional rate taxpayers collect mortgage interest relief at 20 per cent rather than 40/45 per cent.Shareholders do not pay any tax on dividend income that falls within the income tax personal allowance. They also get an additional £2,000 tax-free banding for 2021-22. This was before paying tax at 7.5 per cent at the basic rate, rising to 32.5/38 per cent for higher and additional rate taxpayers.

Reeves also claims Labour has taken the lead away from the Tories as the UK's pro-business party.

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