In an era of record-high rents and surging demand for rental properties, the buy-to-let (BTL) market appears robust at first glance. However, beneath the surface, landlords are grappling with an increasingly challenging landscape, marked by a cascade of tax and regulatory changes.
While the recent scrapping of Energy Performance Certificate (EPC) regulations by Rishi Sunak is a welcome respite, it underscores the need for a broader reconsideration of the regulatory environment to prevent landlords from exiting the market altogether.
The BTL sector, once a cornerstone for property investors, is now navigating a complex maze of regulations that has left many landlords questioning the viability of their investments. Tax changes, implemented to curb the sector's perceived rapid growth, have become a significant source of frustration. The reduction in the capital gains tax (CGT) threshold is a glaring example, with the annual exempt amount shrinking from £12,300 to £6,000 in April 2023 and further dwindling to £3,000 from April 2024.
A diminished CGT allowance poses a considerable challenge for landlords, especially when they decide to sell properties. The increased tax bills in such transactions become a significant financial burden, disrupting the natural turnover of properties in the market.
While the scrapping of EPC regulations is a step in the right direction, there is a growing consensus that more must be done to incentivise landlords to stay in the market. The government or regulators may need to intervene and carefully reassess existing policies to rejuvenate the BTL sector.
In addition to the tax burden which landlords already bear, consideration should be given to the additional costs associated with the necessary safety certificates and in some cases licenses which landlords require to let their properties. Quality landlords, who actively seek to do the right thing by their tenants can find themselves navigating an unclear landscape of legislation and paying out for a variety of contractor and license fees in order to evidence that a property meets the necessary standards. A simplification of the process, policy and legislation around ‘lettable standards’ would provide security for landlords, thus supporting the supply of property. It's worth noting that quality agents can play a pivotal role in supporting landlords, helping them navigate these costs and the legislative minefield associated with property transactions.
Landlords argue that the regulatory pendulum has swung too far, and it is time for a recalibration that encourages property investment without stifling market dynamics. The tax and regulatory burden should be re-examined to create an environment where landlords can freely enter and exit the market based on demand and profitability. A more nuanced approach to policy-making is essential to avoid unintended consequences, such as a mass exodus of landlords that could exacerbate the housing crisis.
Author
Tanya Hasking
Head of Lettings
