The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 come into effect on 1 April 2016. At that time a tenant can ask for permission to make improvements to the energy efficiency of the house they rent. From 1 April 2018 however a landlord will not be able to grant a new tenancy on a property if its energy performance is below Band E and from 1 April 2020 a landlord will be unable to continue a tenancy if it is below Band E.
One of the other points to consider is that in 2014 a change in the building regulations mean that if a property is reassessed due to a change then it may trigger a lower rating than has previously been given. This could mean that if the property is reassessed after 1 April 2018 and it is reduced below Band E then it can no longer be let.
It is this situation whereby the property cannot be let which will cause landlords the most issue. The reason is that if the property cannot be let then any work to improve its energy efficiency will be classified as capital improvements rather than repairs. It will therefore be even more important for landlords to undertake regular repairs to ensure that the energy efficiency level is maintained.
The types of ongoing work that could be undertaken which would improve efficiency and be classified as repairs would include:
- Replacing the boiler
- Changing the windows either to double glazing or getting more efficient double glazing
- Loft insulation
The main issue here is to be proactive in upgrading the energy efficiency of the property. This will have the effect of keeping heating costs down as well as getting the expenditure as a deduction from the rental income in the year it is incurred.
The alternative to being proactive in maintaining the energy efficiency of the property will be that you will lose rental income while you cannot rent the property out. Then you will have to pay to upgrade the property and that expenditure will only be deductible when you sell the property. A much more expensive proposition. If instead of this you take the view that you would simply sell the property to another landlord then they would have to get the work done before they could rent it out which means that you wouldn’t get as much for the property, which would be another losing option.
So the main message for this is to make sure you maintain the energy efficiency of your properties and put in place a regular review and repair cycle for each property. This will ensure that your properties maintain their value and you keep your tax cost down to a minimum.
Reynolds and Co can help you with all aspects of property tax advice.
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