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HMO Licensing and Planning

Laura Malcolm-Nuttall

There are some HMO changes planned for 2020

With more new tax relief rules, updated legislation on energy efficiency standards and a raft of additional fiscal and regulatory policy changes came into force in 2020 it is important landlords start the new decade with a full understanding of what’s changing.
Proactive HMO landlords able to stay a step ahead of key industry milestones will meet the challenges, that lie ahead this year, in an easier way.
So let’s go through the most significant changes due to affect landlords this year:

New Tax Relief Rules
Landlords have met with a row of changes in fiscal and regulatory policy targeting the buy-to-let market since 2015.
They used to deduct all finance costs from their rental income and profits were taxed at their marginal rate.
However, from April 2017 and phased in over a 4-year period, tax relief for finance costs are being restricted to a basic rate tax credit.
The phased reduction began with claimable tax relief reduced to 75% and continued from 2019 to 2020.
From 2020 to 2021 tax year, landlords will not be able to claim any tax relief on mortgage interest payments. Instead, from April 2020, they will get a 20% tax credit on interest payments.
Now HMO landlords are trying different strategies to mitigate the impact of these changes, ranging from rent increases to portfolio resizing.

Minimum Energy Efficiency Standard
Since April 2018, HMO landlords were required to achieve a minimum rating of E on the Energy Performance Certificate (EPC) for their HMOs for new tenancies or tenancy renewals.
However, from April 2020, this will be extended to cover existing tenancies, meaning all rented properties will need to have an EPC rating of E, even where there has been no change in tenancy.
HMOs with an EPC rating of F or G after 1 April 2020 will be classed as ‘unrentable’, so now is the time to make energy efficiency improvements.
The Government has set out its long-term vision to improve energy performance standards of privately rented houses in England and Wales, with the aim for ‘as many of them as possible to be upgraded to EPC Band C by 2030, where practical, cost-effective and affordable’.
For example, EPC D is already required in Scotland by 2025 and the Scottish Government is already consulting on an additional target of C by 2030.

HMO Regulations & Requirements 2020
Keeping on top of the legal requirements & regulations is a challenge for HMO landlords as they are changing regularly. Failure to comply with certain HMO rules could result in prosecution so here we have compiled an exhaustive list of regulations.

Capital Gains Tax: Private Residence Relief
Private Residence Relief (PRR) provides a useful exemption from Capital Gains Tax (CGT). Currently, landlords can claim PPR for all the time they lived in their property before letting it to occupants, plus an extra 18 months after moving out.
From April 2020, this will be reduced to the time they lived in their property, plus only 9 months.
CGT relief of up to £40,000 (£80,000 for a couple) is available for those who let out a property that is, or used to be, their home.
However, from April 2020, this will apply only to landlords who are in shared occupancy with their tenants, as the Government aims to ‘better focus PRR to owner-occupiers’.
In the process of creating or converting a House in Multiple Occupation (HMO) the landlord needs to be fully aware of any possible financial implications if Article 4 Directions restrictions have been put in place by the Local Authority.
Many have already issued city-wide Article 4 Directions, with more expected in 2020, which means letting HMO to three or more people will need planning permission if there is a material change of use.
Previously landlords could convert a family home into a small HMO with up to 6 tenants without consent. Then all HMOs with 7 or more residents need planning permission for change of use.
The policy change removes these permitted development rights, meaning all new HMOs in the designated area would require planning permission.
Section 21 Abolition
The implementation of key Government proposals – including the removal of the Assured Shorthold Tenancy (AST) and the abolition of Section 21, no-fault eviction process – would mark a landmark moment for the Private Rented Sector.
If implemented, the proposals mean all new tenancies will either be an assured periodic tenancy – effectively an indeterminate tenancy – or an assured fixed term tenancy, which reverts by default to a periodic tenancy.
Tenants will be able to end a tenancy with two months’ notice. And at the same time, landlords will only be able to end a tenancy where they can prove they have legitimate grounds under Section 8 of the Housing Act.

We hope this has been of interest to you. Get in touch with us if you need any further advice, we are on hand to support you!

The Homesure Team are available on 0151 722 2222

HMO Changes afoot in 2020
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