June Property Newsletter
Possible changes to SDLT Multiple Dwellings Relief
HMRC have been consulting on changes to the relief from stamp duty land tax (SDLT) when two or more properties are acquired at the same time. This indicates that a change in the rules is imminent, and purchasers should take advantage while the relief continues to apply.
Currently where at least two dwellings are purchased in a single transaction, or as part of a series of linked transactions between the same vendor and purchaser, the purchaser can choose to have the rate of SDLT determined by the average value of the dwellings purchased, rather than their combined value. Purchasers can therefore benefit from multiple nil-rate and lower percentage bandings, significantly reducing the amount of SDLT payable. Multiple dwellings relief doesn’t apply automatically; it must be claimed in a land transaction return and your solicitor may not be aware of this important relief.
Regulation of the Private Rented Sector
In April, the House of Commons Committee released a report of their findings after investigating the regulation of the Private Rented Sector (PRS).
The report includes recommendations to the government on actions to take to improve the rental sector. The government has two months to respond to the report and to decide which actions they will undertake.
According to the report, the private rented sector in England has doubled in size in the last 20 years. Due to the demand, the sector is failing to provide safe homes, with nearly 13% of private rented properties posing a health or safety risk to its renters.
Moreover, it is difficult for tenants to realise their right to a safe home and access guidance or government assistance without the threat of eviction. The report suggests providing better support to renters to help them understand their rights.
The rest of the report focuses mainly on support to local authorities. It argues that authorities do not have the capacity to ensure safe housing for all tenants and outlines ways to provide resources and support for authorities to regulate effectively. We will keep you updated on any developments.
Rent guarantees soar due to the cost of living crisis
As the cost of living continues to rise, many tenants are finding it difficult to keep up with their rent payments. In response, landlords are increasingly demanding rent guarantees from their tenants.
A rent guarantee is an agreement between a tenant and a landlord in which the tenant agrees to pay a set amount of rent each month, regardless of changes in the cost of living. This generally involves the landlord requesting a guarantor (i.e. the tenant’s family member or close friend) that agrees to pay the rent if the tenant is unable to do so.
This type of arrangement can provide landlords with some financial security, but it can also put a lot of pressure on tenants.
Guarantors are common when renting to students or young adults, however, they have become increasingly popular for all types of tenancies.
According to a recent report, the number of landlords asking for a guarantor has risen by 36% in the last four years, while at the same time, rents have also reached a 13-year high.
Increased interest in green buy-to-let mortgages
As the world becomes increasingly focused on environmental sustainability, it’s no surprise that green initiatives are popping up in all sorts of industries. The mortgage industry is no exception, with lenders now offering green buy-to-let deals to encourage landlords to invest in energy efficient properties.
This is a win-win situation for both landlords and tenants, as properties with lower energy consumption tend to be more affordable to run. In addition, green buildings often have a higher resale value, so landlords can expect to see a healthy return on their investment.
According to a recent broker’s survey, 62% of landlords stated their interest in green mortgages. These mortgages often reward borrowers with discounted rates and longer repayment terms for making their existing properties more energy efficient or purchasing energy efficient properties.
At the moment, much of the UK’s housing is energy inefficient. With a green mortgage, the lender will recalculate the mortgage rates with a discount once the owner can provide evidence that they have improved the energy rating (EPC) for the property.
There are several ways you can increase your property’s energy rating, including installing double-glazed windows and doors, upgrading your insulation, replacing your boiler, using energy-efficient lighting or installing solar panels.
How long can house prices continue to rise?
At the beginning of the Covid-19 pandemic, there were widespread concerns that the economic downturn would lead to a sharp decrease in house prices. However, this did not happen. In fact, despite the challenges posed by the pandemic, house prices have continued to steadily increase.
There are a number of reasons for this. Firstly, the lockdown caused many people to reassess their priorities and decide that they wanted to live in a more spacious home, which increased demand. Secondly, the government introduced several measures to help boost the housing market, such as the SDLT holiday.
Halifax bank recently stated that prices increased by 1.1% in April, bringing the average home price to a new high of £286,079. In addition, they mentioned, “For now, at least, despite the current economic uncertainty, the strong increases we’ve seen in house prices show little sign of abating.”
Experts are uncertain about the future of the housing market. While some predict that the increased cost of living and rising mortgage rates could see housing prices start to fall, others do not agree. There is, however, one thing they can all agree on: the risks are big.
Do you need a 5% VAT certificate for construction work?
In the UK, the standard rate of VAT for most building services is 20%. However, a reduced 5% VAT rate can be charged for certain types of construction work, including:
- renovating a residential property that has been empty for more than two years.
- increasing the number of dwellings, such as converting a house into flats.
- converting a commercial building into a residential property.
- converting a house into an HMO (house in multiple occupation).
How to apply 5% VAT
It is up to the builder/contractor to determine whether (and on what services) the 5% VAT rate can be applied. To apply the reduced 5% VAT rate to construction services the supplier must first get proof that they have applied the rate correctly, based on the criteria listed above.
For example, council tax records can be used as proof that a residential property has been empty for more than two years. For conversions to residential property or increasing the number of dwellings a copy of the planning permission or architect’s plans can be used as proof.
Do I need a 5% VAT certificate?
In the majority of cases, you do not need to obtain a certificate. As long as you have the required proof to support your claim, HMRC will be satisfied.
However, a 5% rate certificate is required when renovating or converting a “relevant residential building”. This includes:
- an institution or home that provides residential accommodation for children.
- an institution or home that provides accommodation with personal care for persons in need of personal care.
- a hospice.
- residential accommodation for students.
- residential accommodation for members of any of the armed forces.
- a monastery, nunnery or similar establishment.
- an institution which is the sole or main residence of at least 90 per cent of its residents and will not be used as a hospital, prison or similar institution or a hotel, inn or similar establishment.
- a building that will be used solely for a relevant charitable purpose.
If your construction business undertakes works on one of these types of properties, you must obtain a certificate to apply the 5% rate.
How to obtain a 5% VAT rate certificate
For zero-rated supplies, the property owner can issue a certificate. However, for the 5% rate certificate, the supplier completes the certificate once they have determined that the supply is eligible (and has proof of eligibility).
The supplier will need to download and complete the “Zero-rated and reduced-rated building work certificate” from the “VAT Notice 708” page on gov.uk.
The content in this article is correct as at 13/06/2022. See terms and conditions.