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Legal & Tax: Safe with Farrell Heyworth

As a landlord you will need to be aware of the following legal and tax requirements. Farrell Heyworth can assist in reducing the burden of this regulation.

In this section:

  • Legal: Housing Act 1988
  • Legal: Housing Act Amendment 2004
  • Taxation on Lettings Income
  • Reducing your Tax liability

Legal: Housing Act 1988

The Housing Act 1988 (as amended by The Housing Act 1996) - The Act brought fundamental changes to the law governing the letting of residential property individuals. Many of the changes made the market more attractive for landlords by making it easier to let at a market rent and recover possession when necessary. The new Act specifies the types of tenancy and whilst there are several types it is most likely that the tenancy of your property will be either an 'Assured Shorthold Tenancy' or a 'Company Let'. We can advise you on the most appropriate tenancy for your property.

Gas Safety (Installation & Use) Regulations 1998

These cover all gas appliances, flues , meters and associated pipe work and require landlords to ensure appliances remain safe at all times and are checked and certified at least once every 12 months.

A record of checks carried out by a Corgi registered engineer must be kept. Instruction booklets must be provided for each appliance supplied. Such is the importance of this regulation that we reserve the right to arrange for an annual Gas safety check of the property, at the Landlords expense, should the obligatory Safety Certificate not be available.

We can organise these for you.

Furniture & Furnishings (Fire) (Safety) Regulations 1988 Amendment Regulations 1989 & 1993

This act all upholstery and upholstered furniture supplied by the landlord in a rented property, including; beds, footstools, pillows, headboards, mattresses, beanbags, sofa beds, futons etc.

Furniture manufactured between 1950 and 1990 cannot be supplied to a tenant unless it has been professionally re-upholstered with conforming materials, fire retardant spray treatment is not acceptable by the DTI as it ineffective in affording protection to foam fittings.#

We can check your furnature for compliance.

The Electrical Equipment (Safety) regulations 1994

There is currently no legal requirements to have a formal annual safety check of electrical equipment. However this is open to interpretation, as far as Trading Standards are concerned a landlord must be able to demonstrate that electrical appliances are safe before the property is let. Should any piece of electrical equipment have a fault, which results in injury or fatality, the person is responsible for supplying the equipment could be prosecuted. Therefore professionals recommend annual checks of all appliances.

We can arrange this for you.

Legal: Housing Act Amendment 2004

The Tenancy Deposit Scheme has been established under the Housing Act 2004. It requires landlords to register details of the start and end of all Assured Shorthold Tenancies on which they take a deposit.

Reasons for introduction

It is common for landlords to take a dilapidation deposit from a tenant at the start of the tenancy. The deposit acts as a safeguard should the tenant cause any damage to the property. Some unscrupulous landlords are either very slow to return deposits at the end of the tenancy or make unfair deductions. The purpose of the new regulations is to ensure good practice in this area. The secondary purpose of the new regulations is to try and keep disputes between landlords and tenants out of the courts by encouraging alternative dispute resolution.

How it works

The tenant pays over the deposit (commonly one month’s rent) in the usual way when the tenancy agreement is signed. The landlord or letting agency has 14 days from the commencement of the tenancy to provide the tenant with details of the scheme that they are using (known as the prescribed information). If there is no dispute at the end of the tenancy the deposit will be returned to the two parties as agreed. If a dispute has arisen then the parties will be invited to make use of the alternative dispute resolution process that is provided free within the scheme. Should the parties opt for alternative dispute resolution they will be bound by its decision with no redress to the courts.
There are two types of scheme: insurance backed and custodial. Under insurance backed schemes the landlord or letting agency pays a premium to the scheme but retains the deposit. With custodial schemes the deposit is transferred to the scheme within the 14 day timescale and held in escrow.

The schemes

In November 2006 three companies were awarded contracts by the UK government to run tenancy deposit schemes:

  • The Deposit Protection Service (The DPS), a custodial scheme. [1]
  • Tenancy Deposit Solutions Ltd (TDSL), an insurance-backed scheme. [2]
  • The Tenancy Deposit Scheme (TDS), an insurance-backed scheme. [3]

Enforcement

If a landlord or letting agent does not protect a tenant’s deposit and provide the tenant with the prescribed information within the 14 day timescale they will lose their right to regain possession of their property under the Section 21 (notice only) instrument. If the tenant applies to court for their deposit to be protected and it is shown the landlord has not complied with the scheme the court must order the landlord to pay the tenant three times the deposit amount within 14 days.

The new rules do not affect deposits taken before 6 April, 2007; however, if a landlord renews with the same tenant for a new fixed term the deposit must be protected.

In June 2008, a case came before the Court in Cardiff where the letting agent failed to protect the deposit. The landlord had to pay the tenants compensation equal to three times the deposit of £900 (total: £2,700 + costs) and also refund the original deposit in full. In Gloucester in March, a landlord was required to take the same action even though there were rent arrears.

Full details can be found by downloading this overview of the Tenancy Deposit Protection PDF.

Taxation on Letting Income

UK Resident landlords

If you are a resident landlord in the UK, your net taxable profit from your rental business represents income received without tax deduction at source. This will need to be added to your other taxable income in order to work out your overall tax liability for a particular tax year. The normal method of reporting your taxable income to the inland revenue and calculating your tax liability is via a self assessment tax return.

Non Resident UK landlords

The Non Resident landlords (NRL) scheme is for taxing the UK rental income of person whose usual place of abode is outside the UK. Unless the landlord can provide Complete-Move with an exemption certificate from the Inland Revenue, we are obliged by law to deduct basic rate tax (currently 23%) from rents received and account to the Inland Revenue on a quarterly basis. Landlords should also note that a maximum penalty for non compliance with these regulations is a fine up to £5000 or six month imprisonment.

Reducing Tax Liability

As a landlord the inland revenue will view you in the same way as a business, meaning that costs and expenses incurred may be off set against the rental income, these expenses can substantially reduce or eliminate your tax liability. The letting income on which you are subject to tax is gross income less certain expenses usaully incurred, which usually include the following:-

  • Loan interest (subject to conditions)
  • Rent, rates and ground rent
  • Cost of providing services included in the rent
  • Professional fess, agents, accountancy and legal fees 
  • Cost of repairs
  • Maintenance charges
  • Water rates
  • 10% wear and tear allowance (for furnished properties)

We advise you to speak with our representative with regards the relevant forms which need to be filled in should you live or be going to live abroad whilst the property is let.