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Published: 17 October 2024

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Reapit is worried that the new rules on rent increases will see tenants, landlords and agents tied up in a Tribunal system ill-equipped to deal with a rise in case work.

Agents are facing a massive increase in rent rise challenges once the Renters’ Rights Bill becomes law in the spring of next year, warns Reapit’s Steve Richmond (main image)

Even before the RRB becomes law, proptech company Reapit’s research found that over the number of fair or market rent cases brought before England’s Residential Property Tribunals has increased by almost 89%, from 483 to 921 over the last four years.

Once it does become law, Section 13 will be the only method landlords can use to raise rents, which can only happen once a year. Any English tenant served with the notice can challenge the rent hike, potentially leading to millions more cases going to tribunal each year.

Frustrations will grow for both tenants and landlords.”

It is likely to lead to huge delays in an already overstretched court system which is in the midst of a digitisation process that is proving problematic.

Steve Richmond, General Manager of Reapit UK&I, stressed the need for more investment and reform to expand court capacity before the Bill becomes law, saying: “Without ramping up funding for our courts and tribunals, frustrations will grow for both tenants and landlords.

Strained system

“The Renters’ Rights Bill brings significant changes but adds more pressure to an already strained system.

“We’re also concerned the government hasn’t fully considered the added costs to courts and tribunals, as no impact assessment has been published.

He adds: “If landlords lack confidence in the court and tribunal system to handle rent appeals and evictions quickly and fairly, we are concerned about the unintended consequences.

“We need the government to address the court and tribunal backlog because lengthy delays will burden both landlords and tenants with months of uncertainty. This could lead to a drop in tenant satisfaction, and we fear landlords may exit the sector.

“This would happen at a time when more homes are urgently needed in the PRS.”

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Published: 17 October 2024

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Rachel Reeves will not use her budget to increase capital gains tax on the sale of second homes.

The Times reports that capital gains on profits from the sale of shares and some other assets, which is currently levied at 20%, is likely to increase by “several percentage points”. But the rate will not change for second homes.

The chancellor will reportedly leave the rate of capital gains tax on the sale of second homes and buy-to-let properties untouched amid concerns that increasing it would cost money.

When the Conservatives lowered the rate from 28% to 24% at the last budget, the Office for Budget Responsibility said that doing so would actually raise nearly £700 million because of increased property transactions.

Ministers are reportedly concerned that raising tax on the sale of second homes would damage overall revenues.

More than half of all capital gains relates to the sale of shares, while just 12% is from the sale of property.

It is understood that ministers discussed their options and it was concluded that people would deliberately defer selling assets in a bid to avoid being hit by higher rates.

One government source suggested that revenues from increasing capital gains tax would be in the “low billions”.

Reeves is said to be drawing up plans for up to £40bn worth of tax rises and spending cuts to avoid a return to austerity and real-term cuts to government departments. Most of the money will have to come from tax rises.

Stuart Adam, a senior economist at the Institute for Fiscal Studies, told the press: “Simply increasing headline rates of CGT would raise limited revenue and cause economic damage. If the chancellor wants to raise significant sums, it is essential that rate increases are accompanied by changes to the way the tax works — removing some ill-conceived reliefs while giving more generous deductions for investment costs and losses.”

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Published: 14 October 2024

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Budget time always brings debate about tax and housing and what this means for decision-making on property sales volumes and values.

When it comes to tax, recent governments have focused on how to raise revenues more than focus on how the taxation of property can help drive better outcomes for the efficient functioning of the market. This would require major reforms that are politically challenging.

Instead, governments have introduced greater complexity to target taxes that hit a smaller proportion of homes but generate more revenue.

So what might the government do in this Budget and what would be the impact?

While the focus is on policies to support economic growth, they will have an eye on revenue raising to fund new investment. It’s fair to conclude that if you own more than one property you will be paying more in tax.

There are four areas to watch out for:

Stamp duty in England and Northern Ireland – stamp duty is devolved but most tax is paid in southern England. While there are many proposals put forward every year at budget time, I don’t see any major changes here with the exception of one eye-catching headline opportunity.

Stamp duty receipts have grown fast in recent years generating over £13bn a year. It’s really a tax on buying in southern England which accounts for 56% of the annual bill of which around half is paid for by people who own more than one home (those with the ‘broadest shoulders’ in political parlance).

At the other end of the spectrum half of sales pay no SDLT. For those that day stamp duty 16% of sales over £500k account for 70% of the total stamp duty bill.

The extended stamp duty relief for first-time buyers (FTB), bought in by Kwasi Kwarteng in 2022, is set to expire in March 2025. This helps the 8 in 10 FTBs looking to buy for below £425,000. There must be a good chance there is an announcement that this relief is made permanent. This would be sold as a big win for FTBs – it really benefits those looking to buy in southern England.

Council tax revaluation – there is an outside chance we could see a simple council tax revaluation. Today’s tax bands were set in 1992 and are out of date. A plain revaluation wouldn’t change much in terms of what people pay but it could unlock further reforms for the future.

Academics and economists want more widespread reforms that start to make the tax system fairer but these would represent major changes which have winners and losers that are very politically challenging.

CGT at marginal rate of tax? – One of the tax areas that wasn’t protected in the manifesto was capital gains tax (CGT) although it only brings in 2% of all tax receipts. Tax rates on earnings are roughly twice as high as those on capital gains. There is a school of thought that encourages people to hold onto assets, re-enforced by no capital gains when a person dies. Media speculation suggests that tax rates for capital gains could align with what a person pays on income. Thus sales of residential property could see CGT increase from 24% for higher-rate tax payers to 45%.

In the last tax year, 120,000 people sold 132,000 residential properties with an average capital gain of £50,000 on which they paid an average of £11,000 in CGT. This amounted to £1.5bn in tax on residential disposals. Moving to the marginal rate of tax would see CGT from residential disposals likely double to £3bn. Small by comparison to stamp duty but more meaningful and an extra cost for investors and second homeowners.

Investors have been hit by a succession of tax changes since 2016 and this is another in a long list of factors influencing decisions on whether to buy or sell. Second homeowners are responding to a doubling in council tax from 2025 and speculation over higher CGT rates with second home hotspots seeing homes for sale grow 4x faster than the rest of the market.

Untouchable – CGT on main residence? – one of the biggest tax breaks in the UK, and many western countries, is no tax on the capital gains made for your main residence. In the UK the Government estimates it’s worth over £36bn a year. This definitely fits in the wider reforms category and seems untouchable. It remains a big tax break that supports home ownership.

Overall it’s people with more than one property and those in southern England that will continue to pay the lion’s share of transaction and disposal-related taxes.

However, before crying out too loudly, those living in southern England benefit greatly from the way council tax operates. Any reforms to council tax would see people in southern England pay more as bills fall in lower-value markets. The tax system like everything is far from perfect.

Richard Donnell is executive director of Zoopla

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Published: 09 October 2024

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The Renters’ Rights Bill, which was introduced in the House of Commons last month, is scheduled to have its second reading today.

The government has provided the following briefing which provides background to the bill and an overview of its main provisions:

The bill builds on the Renters (Reform) Bill which was introduced in the House of Commons by the Conservative government on 17 May 2023. The bill did not complete all its parliamentary stages before the dissolution of Parliament in May 2024.

The bill, together with its explanatory notes (which provide a clause-by-clause explanation of the bill) are available on the Parliament website.

This briefing explains the background to the bill and the bill’s main provisions.

What would the bill do?

The Renters’ Rights Bill would:

Reform tenancies

• abolish assured shorthold tenancies and with them, section 21 ‘no fault’ evictions. Instead, private rented sector tenancies would be periodic assured tenancies with no end date – providing more security for tenants. Tenants would need to provide two months’ notice to end the tenancy.

• reform and expand the grounds for possession to enable landlords to reclaim their properties when necessary, whilst ensuring appropriate safeguards for tenants.

Strengthen tenants’ rights

• limit rent increases to no more than once per year, requiring landlords to serve a statutory (section 13) rent increase notice and give at least two months’ notice. Tenants would be able to challenge above-market rent increases through the First-tier Tribunal (Property Chamber).

• prohibit the practice of ‘rental bidding’. Landlords and letting agents would be required to publish an asking rent for their property. They would then be prohibited from inviting, encouraging or accepting offers of rent above the asking price.

• give tenants the right to request a pet, which landlords must consider and cannot unreasonably refuse. Landlords would be able to require insurance to cover potential damage from pets.

• make it illegal for landlords to discriminate against tenants who receive benefits or who have children when letting their property.

Create a landlord redress scheme

• introduce a new ombudsman service for the private rented sector, which all private landlords would be required to join. The service would provide fair, impartial and binding resolution for tenants’ complaints about their landlord. It would have powers to compel landlords to issue an apology, provide information, take remedial action, and/or pay compensation.

Create a private rented sector database

• create a new private rented sector database to bring together key information for landlords, tenants and local authorities. This would enable: 1) tenants to access key information to inform their choices when entering new tenancies and throughout their tenancy; 2) landlords to understand their legal obligations and demonstrate compliance; and 3) councils to target enforcement activity where it is most needed.

Create a legal standard for property conditions

• introduce a decent homes standard to the private rented sector and provide local authorities with the power to enforce it. The bill would also apply Awaab’s Law to the sector, which would set timescales within which landlords must make homes safe when they contain serious hazards and empower tenants to challenge unsafe conditions. The details will be set out in secondary legislation.

Expand enforcement powers

• expand rent repayment orders, including by: 1) extending them to new offences; 2) doubling the maximum penalty; and 3) ensuring repeat offenders have to pay the maximum penalty. Rent repayment orders allow a tenant or local authority to apply to the First-tier Tribunal (Property Chamber) for an order that a landlord or their agent has committed an offence and should repay rent of up to a maximum of 12 months.

• strengthen local authorities’ enforcement powers, expand financial penalties and introduce a new requirement for authorities to report on enforcement activity. The bill would also give the Secretary of State the power to appoint a lead enforcement authority, whose role would include providing guidance and information to local authorities to ensure consistent enforcement.

The Ministry of Housing, Communities and Local Government has published a guide to the Renters’ Rights Bill. See below. 

To date, the bill’s impact assessment has not been published.

Why is the government legislating?

The bill is intended to address a range of issues in the private rented sector, including those associated with assured shorthold tenancies.

Assured shorthold tenancies were introduced by the Housing Act 1988 and became the default tenancy in the private rented sector in England from 28 February 1997.

The sector has grown significantly since then; 4.6 million households rented their home from a private landlord in 2022/23, representing 19% of all households in England. A diverse range of households, including families with children, live in the sector.

Assured shorthold tenancies offer no long-term security of tenure. Section 21 of the 1988 act enables private landlords to repossess their properties without having to establish fault on the part of the tenant. It is referred to as the ‘no-fault’ ground for eviction.

Housing insecurity can have a range of negative impacts on people’s physical and mental health, finances, employment prospects, and ability to form support networks in their local community.

Lack of security also means tenants can feel unable to enforce their rights in relation to repairs and to challenge unreasonable rent increases. The private rented sector has a higher proportion of properties that do not meet standards than other housing tenures.

Additionally, private landlords in England are not required to belong to a redress scheme. Tenants are often left to negotiate with their landlords and enforce their rights through the courts. The court system can be costly and time consuming for both tenants and landlords.

Landlords have also reported problems with the current system of private renting. For example, they have had problems recovering properties when faced with anti-social behaviour or rent arrears. They use section 21 to avoid lengthy processes and the uncertainty associated with evicting tenants through a section 8 notice (which is used when a tenant has breached the terms of a tenancy). Landlords also report difficulties in accessing information and support to navigate the laws and regulations in the sector.

Although local authorities have extensive powers to address poor property conditions and management standards in the private rented sector, there’s evidence of low and inconsistent levels of enforcement between authorities. A lack of robust data and information on the sector is recognised as a key barrier to effective enforcement action.

When would the bill come into force?

Following Royal Assent, most of the act’s provisions would come into force on a date(s) to be specified by the Secretary of State in regulations.

The government “wants to see tenants benefit from these reforms as quickly as possible”. It therefore intends to introduce the new tenancy system for the private rented sector in one stage. Upon the commencement date, the new tenancy system would apply to all private tenancies – existing assured tenancies would become periodic, and any new tenancies would be governed by the new rules.

The BBC has reported that the government hopes to have the new tenancy system in place by summer 2025. The government says it “will work closely with all parts of the sector to ensure a smooth transition to the new system, and will provide sufficient notice ahead of implementation”.

Reaction to the bill

The bill, in particular the abolition of section 21 ‘no fault’ evictions, has been broadly welcomed by organisations representing tenants, the housing sector and local government.

Responding to the introduction of the bill, the chief executive of the housing charity Shelter, Polly Neate, referred to it as “a watershed moment”. Generation Rent, a campaigning organisation that represents renters, said the bill was “an important step forward for our rights which should be celebrated”. Chief executive of the homelessness charity Crisis, Matt Downie, said it would “provide tenants with long-overdue security and protection against homelessness”.

Tenant organisations have urged the government to pass the bill as soon as possible to prevent landlords from rushing to evict tenants before the new legislation is in force. They have also called for stronger protections for tenants, in particular to prevent unaffordable rent increases. The Renters Reform Coalition (RRC) of charities and campaign groups wants in-tenancy rent increases to be limited to the lower of inflation or wage growth. It also considers all grounds for possession should be discretionary, so that courts can take a range of factors into account when considering a possession claim.

Landlord bodies initially opposed the abolition of section 21. Both the National Residential Landlords Association (NRLA) and the Large Agents Representation Group have emphasised the tenancy reforms represent “the biggest change to the sector for over 30 years” and the sector must be given sufficient time to prepare for the changes. Landlords have also called for court reforms to improve the speed and efficiency with which possession claims are processed.

The provisions to establish an ombudsman service for the private rented sector and to require all private landlords to join have been broadly welcomed by all stakeholders, as has the establishment of a private rented sector database.

Enforcement measures are viewed as important by all stakeholders. London Councils and others are calling for adequate funding so local authorities can carry out effective enforcement.