The landscape of landlord tax laws in London has undergone significant changes in 2024, impacting landlords, property investors, and even tenants in indirect ways. Below, we provide a comprehensive overview of the changes that are afoot, and share some strategies for landlords to help navigate these shifts.
Capital Gains Tax and allowances
One of the major changes in 2024 is the slashing of Capital Gains Tax (CGT) allowances. Previously, landlords could make gains of up to £6,000 before paying any tax, a decrease from £12,300 in 2022-23. However, from April 2024, this allowance will be further reduced to just £3,000​​. This reduction means landlords selling buy-to-let properties may face higher CGT bills, with 52% of landlords expressing concern about these reforms, and 10% considering selling their properties entirely​​. Suffice to say, it’s essential to fully understand all taxation implications as a landlord, not just tax on rental income itself.
Renters reform and leasehold bills
The Renters Reform Bill, expected to hit the statute book in 2024, will profoundly change how landlords let properties to tenants​​. Additionally, the Leasehold and Freehold Reform Bill will significantly benefit the 38% of landlords owning leasehold properties, enabling them to extend leases up to 990 years, abolish marriage value, and limit ground rent​​.
Stamp duty and pension allowance changes
There have been important developments in stamp duty and pension allowances as well. The residential nil-rate tax threshold’s “permanent” increase to £250,000, introduced in 2022, will end on 31 March 2025, reverting to the full stamp duty rates next year​​. Furthermore, the government abolished the lifetime pension allowance, which was £1,073,000, starting from 6 April 2023. This change is particularly relevant for landlords who often use their pensions to invest in buy-to-let properties​​.
Consumer protection and market authority
The Competition and Markets Authority (CMA) is conducting a consumer research project focusing on various aspects of the rented housing sector, including ‘zero-deposit’ schemes and sham licences. The results are expected in spring 2024, which will update guidance on consumer protection law for landlords, tenants, and letting agents​​.
London property market trends
In terms of market trends, the Chestertons Property Market Forecast for 2024 predicts a slight decline in UK house prices (-0.3%) but a 1.8% growth in Prime Central London and Greater London, driven by cash buyers. Rental growth is expected to continue, with a predicted 5% increase in Prime Central London and across the UK, and a smaller increase of 4.5% in Greater London​​.
Advice and strategies for landlords
The landscape for landlords in London is evolving rapidly, with significant changes in tax laws and market conditions in 2024. To effectively navigate these changes, landlords need to adopt strategic planning and adaptability. Here are some practical tips and strategies:
Tax planning and consultation
- Engage a tax advisor: With the complexities of the new tax laws, it’s crucial to consult with a tax advisor who specialises in real estate. They can provide personalised advice on capital gains tax, pension allowances, and other relevant tax obligations
- Understand CGT implications: Given the reduction in Capital Gains Tax (CGT) allowances, landlords should carefully plan the timing of their property sales. Consider if and when to sell properties to minimise CGT liabilities
- Utilise allowances and reliefs: Stay informed about any allowances or reliefs you may be eligible for. For instance, explore if you can benefit from any rollover reliefs or hold-over reliefs, particularly if you’re planning to reinvest in other properties
Portfolio diversification
- Explore different property types: Diversify your portfolio by investing in various types of properties, such as residential (which may also contain adding features that add value to your property like a backyard shed or swimming pool), commercial, or mixed-use properties. This can spread risk and open up new revenue streams
- Geographical diversification: Consider investing in properties outside of your usual area, potentially in different parts of London or even in other cities, to spread risk and capitalise on different market conditions
- Focus on emerging markets: Keep an eye on emerging markets or neighbourhoods that show potential for growth. These areas might offer more affordable investment opportunities and higher long-term returns
Adaptation to market changes
- Stay informed: Keep abreast of market trends, economic indicators, and political changes that could affect the property market. Regularly review market reports and forecasts
- Adjust rent strategically: With the predicted rise in rents, set your rental prices competitively while ensuring they align with market rates. Be responsive to changes in demand and supply in your property’s area
- Enhance property value: Invest in property improvements that boost value and attract tenants, like modern amenities or eco-friendly features. This can also justify higher rents and increase your property’s market value
Long-term financial planning
- Review mortgage options: With changing mortgage rates, reassess your current mortgage deals. Consider refinancing if you can secure a lower interest rate
- Pension fund utilisation: If you’re drawing from your pension to invest in properties, ensure that this aligns with your long-term financial goals. The abolition of the lifetime pension allowance offers more flexibility in this area
- Build a cash reserve: Maintain a cash reserve to cover unexpected expenses, market downturns, or periods of vacancy. This financial cushion can provide stability and flexibility
Legal compliance and tenant relations
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Understand legal changes: Stay updated on legal changes, like the Renters Reform Bill, and understand how they impact your responsibilities and rights as a landlord
- Maintain positive tenant relations: Good relationships with tenants can lead to longer tenancies, reducing turnover costs. Be responsive to tenant needs and ensure your properties are well-maintained
Networking and continuous learning
- Join landlord associations: Becoming a member of landlord associations can provide access to resources, advice, and networking opportunities
- Continuous education: Attend seminars, webinars, and courses to stay informed about best practices, legal changes, and market insights
By implementing these strategies, landlords can better navigate the challenges and opportunities presented by the changing landscape in London’s property market. It’s about balancing the need for immediate adjustments with a vision for long-term growth and stability.
Final thoughts
The year 2024 presents a challenging yet dynamic environment for landlords in London. The reduction in CGT allowances, the implementation of new housing bills, changes in stamp duty and pension allowances, and ongoing consumer protection initiatives collectively shape the landscape. Additionally, the property market forecasts a mixed picture with slight growth in some areas and declines in others, reflecting broader economic trends.
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