Uncertainty for landlords

July 1, 2024

Uncertainty for landlords

Despite support from the Labour Party, the Renters (Reform) Bill was not enacted before parliament was prorogued ahead of the general election. The Leasehold and Freehold Reform Act made it under the wire, but without the expected cap on ground rents.

Rental reform

The Renters (Reform) Bill would have seen the abolition of the controversial Section 21 notices, which enable landlords to take possession of a property without providing a reason. Tenants and homelessness charities expressed consternation at the failure to enact the provision.

The Bill is likely to return in some form regardless of who wins the election. A Labour government might well abolish Section 21 notices for all tenancies straight away despite the readiness of the county court system to process possession orders.

Leasehold reform

There was no expectation of an immediate reduction of all ground rents to a peppercorn amount, but it was reported a month ago that a compromise would see ground rents initially capped at £250 annually. Although this measure was not included, the new Act may help landlords who own leasehold flats and apartments:

  • Leaseholders can now obtain a 990-year lease extension; previously, leases for flats and apartments could only be extended by 90 years.
  • When a lease is extended, future ground rent will effectively be set at zero.

The valuation process is now more favourable to the leaseholder because there is no longer any requirement to pay a marriage value, plus the future value of ground rents in the valuation calculation is restricted. Prior to the new Act, marriage value came into play when a lease had 80 years or less to run. It represented the increased market value of obtaining a longer lease.

Ground rent is not payable on new leases granted from 30 June 2022, so the new measure will help landlords with older leases move to a level playing field.

Furnished holiday lets

The advantageous tax regime for furnished holiday lettings is set to be abolished from April 2025, but the election announcement has introduced uncertainty here as well. The draft legislation has not even been published yet.

HMRC have rejected a suggestion to introduce a brightline test which would have clearly set out the distinction between trading and investment for such properties.

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