Changes to the Green Tax

Posted: 21st Aug 2016

Tax RulesBuy to let landlords seem to be have been hit left, right and centre in the past year or so.

Last year, the then Chancellor of the Exchequer phased in the removal of tax relief on interest paid for buy to let mortgages, the referendum vote on the 23rd of June 2016 has thrown the housing market into chaos and left a cloud of uncertainty over the private rental sector and, to cap it all, within the next four years, landlords are going to have to make their let properties more energy efficient.

What is the “green tax”

The government claims that taxes in a number of sectors of the economy are designed to effect environmentally friendly or “green” improvements. The fall-out for landlords is summarised in a report by the Residential Landlords’ Association (RLA) on the 2nd of August 2016.

In the case of let property the green tax takes the form of requiring any let property to reach at least Band E on the 7-point energy efficiency rating scale for residential accommodation.

It is estimated that this new requirement will affect some 330,000 properties – typically those built during Victorian or Edwardian times – already in the buy to let market. The cost of upgrading to the new energy efficiency standards may in some cases be considerable, with landlords themselves having to contribute up to £5,000 towards those costs.

From the year 2018, any new tenancy needs to meet the revised energy efficiency requirements, whilst by the year 2020, the new standards have to be met in all tenancies.

So what has changed?

Landlords, of course, have a general incentive for increasing the energy efficiency of their properties. Cheaper energy costs for tenants may be passed on in terms of lower rents and the improvements carried out by the landlord are likely to be welcomed and help to cultivate cooperative relationships between tenants and landlords, so helping to reduce tenancy turnover and retaining happier tenants.

Landlords previously had an extra financial incentive for making these improvements – say through the installation of more energy efficient heating and hot water boilers, filling cavity walls and putting in better insulation throughout the property. Help towards the costs of these improvements was provided in the form of interest free loans from the government-backed Green Deal Scheme.

The government has now withdrawn funding for that scheme, meaning that landlords need to foot the bill for energy efficiency improvements themselves – with no choice but to make those improvements within the next four years.

Likely consequences of the changes

With landlords having to recover as much as £5,000 for each property they let, it seems pretty clear that the only way to do so is through an increase in rents – which many sections of the population complain are already too high.

Tenants continue to enjoy the benefits of energy efficiency improvements – because the energy bills they pay will be lower – but the landlord needs some way to recover the amount spent on improving the property.

Here at Cover4LetProperty we are all too aware of the increasing pressures under which buy to let landlords are struggling to operate. Their businesses already face increases in operating costs through the withdrawal of tax relief on mortgage interest, threats to further increases in business overheads brought about by a generally uncertain economic environment and, now, the removal of one small crumb of comfort in the form of loans from the Green Deal Scheme.

Energy efficiency improvements are no longer an option for the caring and responsible landlord, but have become the focus of a compulsory green tax.

It is because of those many pressures on operating costs that, here at Cover4LetProperty we do our level best not only to secure the landlord cover which the owners of buy to let businesses need, but to find the cover which is genuinely price competitive and represents good value for money in meeting those needs and circumstances.

The future

A point of view expressed on the website Landlord Zone forecasts a fairly grim few years for landlords as the country as a whole negotiates the big uncertainties of Brexit, and the effects of what appear to have been a string of punitive measures and regulations imposed by government on private sector landlords.

These adverse effects are most likely to be felt in the southeast of England and in London in particular, where some 37% of the total housing stock is now in the hands of private sector landlords.

There may be hope that there is a wind of change for the buy to let market and concessions made – especially if the rate of new building continues to slow down and more and more landlords are discouraged from investing in buy to let property in the first place.