The legal changes to expect and plan for in 2020
As has been the case for each of the past few years, there are once again a number of legislative changes to prepare for in the coming 12 months. Some have already been passed through Parliament and a firm date has been set for the law to come into force. Others have been through the consultation process but have yet to be drafted as Bills and debated by ministers. However, they may well become law at some point in 2020.
So here is our diary round-up of the definite and likely legal changes you should prepare to comply with over the next year:
Likely in quarter one of 2020
A response to the consultation on the proposed changes to Section 21 in England.
As part of the current government’s ongoing commitment to delivering ‘a fair and balanced relationship between landlord and tenant’, it has held two consultations which involved extending tenancies and the abolition of the Section 21 notice, the last of which closed on 12th October.
- Landlords and agents would no longer be able to end a tenancy by issuing a tenant with a Section 21, giving them two months’ notice to leave the property without having to give a specific reason. Essentially, the Assured Shorthold Tenancy would become an open-ended rental agreement
- A tenancy could only be ended via a Section 8 notice, which requires a reason to be given for termination
To reassure landlords they could still get their property back when needed, the government has pledged to make other part of the system perform better, proposing:
- Extending the grounds to repossess under Section 8 (e.g. if landlords need to sell or move a family member into the property)
- Looking at whether some of the existing grounds should be updated to give landlords the powers they need
- Introducing a dedicated Housing Court to make it quicker and easier for landlords to regain possession of their properties if a tenant refuses to leave
For good landlords who already operate ethically, any scrapping of Section 21 should make little difference, as you will still be able to get rid of tenants who breach their agreement or if you have a legitimate reason for needing to regain possession.
10 January 2020
The Fifth Money Laundering Directive
On the 10 January the Fifth Money Laundering Directive (5MLD) takes effect in the UK. This will make changes to the UK anti money laundering regime and will bring letting agents within the scope of the Money Laundering Regulations for the first time.
All tenancy agreements with a rent in excess of €10,000 per calendar month will be caught by the regulations. What this means is that for the first time lettings agents will be required to carry out what ois being called “know your customer” checks on landlords and tenants. The “Know Your Customer” checks will mean identification checks, verification that the tenancy is genuine and has not been set up to assist either the landlord or tenant to clean up the proceeds of crime. Tenancies that fall within the scope of these regulations will require on-going monitoring to check the initial conclusions regarding the money-laundering risk remain relevant. Landlords and tenants who fall into this category of tenancy should therefore prepare for more questions and administration.
Further information on the Fifth Money Laundering Directive can be found on the .GOV website
01 April 2020
Minimum Energy Efficiency Standards (MEES) for an ‘E’ rating extend to all properties in England & Wales.
This is the second phase of the legislation that applied to properties for new and renewed tenancies from 1st April 2018, under the Energy Efficiency Regulations 2015. As of April 2020, it becomes illegal for any property let privately on an AST to be rated F or G on the EPC without registering an exemption.
So, if you have a current tenancy that began before April last year, you must now make sure that the property is rated E or above on the EPC. If it’s not, you’ll need to take steps to improve the energy rating so that the property complies, which might well be as simple as having roof, loft and/or wall insulation installed. That could cost as little as £300, but if it would be significantly more expensive to bring the property up to standard.
If you are found to be breaking the law, you could be fined up to £5,000 and will be unable to let the property until it is compliant.
06 April 2020
Three changes come into effect for Capital Gains Tax payments:
- A payment on account of CGT will need to be made within 30 days of completion of a residential property sale or other disposal (such as giving it away) if gains are liable to CGT
- The Private Residence Relief (PRR) is reducing. If you once lived in the property you now let out, you currently don’t pay any CGT for the years you lived there, plus you get an additional exemption for the final 18 months you owned it, even if you weren’t living there yourself. From 06 April, this additional exemption period is dropping to 9 months
- Lettings relief is being withdrawn. As it stands, if you have ever lived in the property you currently let out, you can claim up to £40,000 relief on top of PRR. From the start of the new tax year, this will only apply if you yourself share the property with a tenant – otherwise, if you no longer live in the property, you will lose this relief altogether
The government's publication 'Capital Gains Tax and Corporation Tax on UK Property Gains' is available on the GOV.UK website.
The final phase of the withdrawal of mortgage interest and finance costs as an ‘allowable expense’ completes.
For the financial year beginning on 06 April, you won’t be able to deduct any of your mortgage interest and finance costs for your rental income. Instead, the entire amount will simply be subject to relief at the basic rate of 20%.
01 June 2020
The tenant fee ban applies to all tenancies in England.
The same legislation that came into effect in June 2019 for new tenancies now extends to all tenancies, meaning landlords and agents cannot charge any fees to tenants, other than:
- An administration fee when the tenant requests a change or early termination of a tenancy. This is capped at £50, unless higher reasonable costs have been incurred.
- Utilities, communication services and Council Tax bills
- Payments arising from a default by the tenant, e.g. replacing a lost key.
- Holding deposits are capped at one week’s rent
- Tenancy deposits are capped at 5 weeks’ rent - 6 weeks if the annual rent is £50,000 a year or more.
Be aware that this cap on deposits means you will no longer be able to take an additional deposit in relation to pets.
If you’re found to be in breach of this law, you could be fined up to £5,000 for a first offence, with an unlimited fine for reoffending within 5 years.
The Tenant Fees Act can be found on the .GOV website.
Additional things to look out for in 2020
Mandatory 5-yearly electrical checks for PRS properties in England.
The formal response to the consultation held on improving electrical safety in the Private Rented Sector was published by the government back in January. While no further progress has been made in 2019, the government did announce its intention to introduce legislation ‘as soon as parliamentary time allows’, so it would be wise to prepare for it to become law before too long to have 5-yearly checks to secure an Electrical Installation Condition Report (EICR).
Landlords will be legally required to ensure that the people carrying out inspections are suitably competent and will also be encouraged to voluntarily:
We would recommend that if you have not had the electrical system in your rented property inspected within the last five years, you should do so now. If we manage your property, we can arrange for this; otherwise you can find a suitably-qualified electrician via Electrical Safety First or the Electrical Safety Register.
Increasing the minimum notice period for a no-fault eviction in Wales
The Welsh government recently held a consultation proposing increasing the initial period during which the landlord cannot give notice, from 4 to 6 months, then extending the subsequent minimum notice period from 2 to 6 months. Effectively, they would be introducing 12-month tenancies by default. The consultation ended on 5th September and the government is yet to publish its response, but some legislation may be put forward in 2020, particularly if Section 21 is abolished in England.
If you have any questions about upcoming or existing legislation, just call into your local Reeds Rains branch and one of the team will be happy to help.