![](https://cdn.prod.website-files.com/63bec6da54f081eb192e7e3b/6470b9b56b25b30b3bfafb53_Group%2014449.png)
![](https://cdn.prod.website-files.com/63bec6da54f081eb192e7e3b/6470b9b56b25b30b3bfafb55_Group%2014448.png)
Here Tom Entwistle looks at the early signs ahead of this week’s King’s speech. The speech should reveal more detail and the general direction of travel Labour will take towards its reform of the private rented sector (PRS) over the next few years.
Ongoing uncertainty about the future during the election process, before and beyond is not helping the buy-to-let private rented sector. While the landslide victory gives Labour the remit to create the party’s own version of the proposed changes the Tories made, it remains to be seen what Labour's will look like. There are still some big questions over just what Labour will do.
The fear among landlords is that Labour will "revert to type" and introduce some swinging anti-landlord legislation that will go well beyond that introduced by the Tory government, not exactly one that favoured landlords either. Or will we be pleasantly surprised and find them rolling back on some of their more outlandish rumoured proposals?
In the meantime, the rental market itself remains challenging, to say the least, for buy-to-let landlords. Mortgage rates might be coming down, but very slowly as bank base rates are holding up progress. And will tenant demand and rental growth, which is still strong, albeit softening, keep landlords engaged, while house prices remain flat.
Landlords are now having to think twice before increasing rents as tenants are squeezed by increasing costs. There is after all a limit to what they can afford. This situation also makes landlords think twice about risking more capital by making new investments. Many landlords have already been thinking that the time has come to sell.
In its election manifesto, Labour pledged to "immediately" ban Section 21 “no-fault evictions” and has been critical of the Tory government’s delays, failing to fulfil it’s election promises on this issue when failing to progress its Renters Reform Bill before it called an election.
However, Labour will have the same problem as the Tories had on the Section 21 banning issue: the county courts cannot cope with the workload they already have, with long delays on evictions. This situation would likely get far worse if Section 21 is banned, so the new law may have to wait until a way is found to alleviate the court problem.
When Section 21 is abolished, landlords will have to provide their tenants with a reason for ending their tenancy and justify this at a county court hearing, if they want an eviction. The decision will be at the discretion of a judge, as opposed to the mandatory eviction decision achieved through the document-based Section 21 process. This was only dependent on all the prerequisites being in order.
It is almost certain that Labour will proceed with the Tory Bill or something like it, given the work that’s already been done, but the fear is something even more stringent will be the result.
Labour has also promised to extend the series of building safety rules for social tenants, known as Awaab's Law, to private renters. Awaab's Law is part of the Social Housing (Regulation) Act 2023 and has been implemented to tackle the problems of damp and mould in social housing, but Labour’s plan is to extend these regulations to the PRS.
As it now stands in the social rented sector, these regulations mean prompt investigation and remediation action from landlords is required when they have a complaint, or their regular inspections reveal damp and mould issues. Landlords must address damp and mould issues without delay, identifying the root cause and then quickly implementing solutions.
Landlords must investigate potential hazards within 14 calendar days of becoming aware of an issue, and they must provide tenants with a written summary of the investigation findings within 48 hours detailing hazards found and the next steps. Repair works must begin within 7 calendar days and be completed within a “reasonable” time. In severe cases alternative accommodation must be offered at the landlord's expense. Landlords are expected to keep comprehensive records throughout the repair process.
The additional requirement for the PRS of meeting Decent Living Standards, planned under the Renters (Reform) Bill, means that rental homes must be free from serious hazards, with landlords proactively preventing damp and mould through regular checks and maintenance. Under the existing Housing Health and Safety Rating System (HHSRS) 29 hazards are identified which include damp and mould, excess cold, trip, fire, and electrical hazards, etc.
Labour has made it clear that improving housing to help tackle climate change is among its top priorities. Labour's aim is to have a “warm homes plan” to improve housing insulation and “cut domestic emissions to net zero.”
The chances are that Labour will reverse the relaxation of the energy efficiency EPC “C” targets for rental homes and will bring forward this requirement again, originally targeted toward the end of the decade. Private rented homes will very likely have to meet new minimum energy efficiency standards by 2030.
Labour has said it will not bring in Rent Controls. But labour, especially the left of the party, has always had a proclivity for rent control, witness some recent councils. Rent Pressure Zones, Rent Caps or whatever other euphemisms are used for Rent Control are one of the biggest fears and turn-offs for landlords. Those of us old enough to remember the “Rent Acts” and fully regulated tenancies know why they nearly destroyed the residential rental market in England and Wales. Other regions, especially Scotland are already experiencing modern rent control effects.
Labour has promised to put reforms to England's planning system first and foremost in the King’s speech, though several new laws have already been confirmed, including having mandatory housing targets for local authorities.
Labour has promised a new national policy planning framework to “ensuring a robust supply of new homes,” with a target of 1.5 million new homes during its first parliament. The party promises more support for local authorities including additional funding to maintain up-to-date Local Plans with strict enforcement. More funding will be available for planning officers, supported by an increased stamp duty surcharge on non-UK residents, they say.
Local communities are to be given a bigger say on shaping house building projects, with intervention powers used if necessary to ensure development meets local needs.
Brownfield sites (previously used land) are to be prioritised for development while fast-tracking development on these urban sites to minimise the environmental impact. More greenbelt development is planned by Labour to be ameliorated by a strategy of using lower quality or “grey belt” land first, while following rules to ensure that the changes benefit communities and nature.
New towns and urban extensions have been mentioned, with plans to develop and build some new large-scale communities in partnership with local authorities and developers. Compulsory purchase reforms have also been mentioned, to streamline the assembly and site delivery of developments, with “fair compensation rules.”
Reacting to the proposals Labour has revealed on the planning changes so far, Dominic Agace, Chief Executive of agents, Winkworth, comments, Dominic Agace, Chief Executive of Winkworth says: “I welcome their investment into planning departments and quicker release of development sites to help meet housing demands."
The rumours have been rife about increases in capital gains and tax (CGT) among others. Because profits have been squeezed through the Tories’ Section 24 tax regime, plus a stamp duty surcharge, other reduced allowances, and more recently higher mortgage rates, buy-to-let investors have looked to capital gains to compensate. Therefore, a large CGT increase would undoubtedly create a significant disincentive for new and existing landlords to enter the market or expand their portfolios.
The Labour Party was elected with a promise not to increase taxes for ‘working people’, whatever definition they use for that. But with a fiscal plan to increase tax revenue by over £8.5 billion per year by the end of the parliament, the sixty-four-million-dollar question is, where will the extra tax revenue come from, what section of the population is most likely to take the hit?
Capital gains tax is an obvious one, Non-doms have already been promised significant reforms and inheritance tax (IHT) was specifically mentioned in Labour’s manifesto with promises to curb “the use of offshore trusts to avoid inheritance tax”. Other Labour commissioned reports have gone much further talking about ending concessions for business transfer relief.
Clamping down on tax evasion is another area where Labour proposes to increase tax revenue. HMRC compliance activities are to be increased by recruiting and training 5,000 extra staff and HMRC will invest in new technology to transform the tax system, says Labour.
A tougher legal regime is to be implemented to make sure there is a real deterrent to tax evasion. Labour also says it will consider widening the scope of schemes that are reportable under the disclosure of tax avoidance schemes (DOTAS) rules and the strengthening of HMRC’s ability to make taxpayers under investigation pay the tax they owe.
A couple of tax avoidance schemes have been marketed to landlords over recent years - to avoid CGT and IHT and some other taxes – have already been targeted by HMRC. These are elaborate schemes known as “hybrid business models” involving landlords incorporating, setting up trusts and creating limited liability partnerships. The full consequences of these actions have yet to be realised because HMRC’s view is that these schemes do not work.
IHT is another area where there is wide speculation that there could be significant reform. There is likely to be a consultation in the autumn, but possible changes could include making business property relief less generous.
The Tories had already put in train significant changes to furnish holiday lettings (FHL) taxation, some of which were stalled during the election. It is something Labour are very likely to resurrect.
Many of the tax changes made already, and those proposed, could further encourage landlords to incorporate their property businesses. By transferring their properties into a limited company, which the Tories saw as a positive move for the professionalisation of the sector, some genuine tax savings are possible. But incorporating does not make sense for every landlord. If you are considering doing this, you should take professional advice.
A steadily increasing number of buy-to-let landlords have already been incorporated over the past few years. Limited companies pay corporation tax on their profits, which is normally lower than income tax for higher-rate taxpayers, and mortgage interest payments can be deducted for companies.
Labour has said it will not increase corporation tax. It will be harder for any government to specifically target landlords when they operate through a limited company, but any landlord wanting to transfer an existing portfolio into a limited company will need to consider their liability for CGT and stamp duty land tax (SDLT) on transfer.
House prices, mortgages, rents, regulation changes, taxation, rent control. These, regardless of what extra Labour may do, will mean that the PRS will remain a challenging market in which to operate. For the small-scale landlord (those with up to 4 buy to let properties) the environment will be particularly tough. Scaling up makes things easier, with economies of scale, and it then makes more sense to incorporate.
Whatever happens, landlords need to become more professional, providing good quality accommodation at a competitive price. In my view there is still a good future for those landlords who operate within the rules and work to this ethos.
It is not in Labour’s interest to destroy the PRS - many fears are made of imaginings - so let us hope that they have this in mind with their new proposals.
Tags:
Comments