Tenancy reforms and higher tax bills are looming around the corner, so landlords need to arm themselves with as much knowledge as possible. However, it’s not all doom and gloom – higher rental yields, along with other benefits, are on the cards for landlords.
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What’s in store for landlords in 2023?
Even though rental demand is likely to keep growing, it’s unlikely that rents can keep rising at the level they have this year – nevertheless, the best rental properties should continue to see market-beating growth.
Market forecasters are predicting average rental growth across the UK between 4% (Knight Frank and JLL) and 6.5% (Savills) for 2023, and around 16-20% cumulative growth over the next five years.
If you’re looking to sell property, sooner rather than later would be better. Property prices aren’t expected to recover for a few years, and things may get worse than forecasted.
On the other hand, if you’re looking to buy and expand your portfolio, 2023 could be a great opportunity to bag a bargain, so it’s worth starting the hunt to potentially track suitable properties but before you invest, check carefully that the property will still stack up financially if things take more of a dip than expected, especially if you need to buy with a mortgage.
Reduced capital gains tax allowance
As of April, the tax-free allowance for landlords selling a property will be drastically reduced, which could mean a higher capital gains tax (CGT) bill depending on when you sell in 2023.
Currently, sellers can earn a profit of £12,300 on an asset before having to pay CGT but the government announced in the Autumn Statement that the threshold will be more than halved to £6,000 from 6 April. This comes before a further reduction in April 2024, when the allowance will be just £3,000.
Landlords will therefore be more likely to have to pay capital gains tax on the profit they make when they sell a buy-to-let property next year.
New rules on tax relief for landlords operating holiday lets
Currently, those who have a second home in England can apply to their local authority for a council tax discount and access small business rates relief simply by declaring an intention to let the property as a holiday home.
However, from 1 April 2023, in order to qualify for business rates, second homes will have to be rented out for at least 70 days a year and available to let for at least 140 days. This is to help make sure only genuine holiday lets benefit from the tax relief.
Bargains can be had by savvy landlords
House prices have continued to climb year-on-year, but it’s set to be a different story in 2023.
The market is already slowing, as high mortgage rates and the cost-of-living lowers demand from buyers. As a result, professional landlords could utilise the slower market to pick up property bargains.
Data from Propertymark shows that 72% of agreed sales in November were below the asking price, while figures from Hamptons show 37% of offers made by landlords in the same month were on properties without any other offers.
Improving energy efficiency remains high on the government’s agenda.
Currently, rented properties must have an Energy Performance Certificate with a rating of E or above but the government is planning to introduce new rules requiring all new tenancies to have a rating of C by 2025, with existing tenancies following suit by 2028.
The new legislation is also set to increase the capped amount landlords will be required to invest to achieve improved ratings, from £3,500 to £10,000.
Swathes of privately rented homes have an EPC rating below C, meaning landlords will need to carry out upgrades over the coming years.
Consultation on a short-term let licensing scheme to close
The Welsh government is consulting on the introduction of a new holiday let licensing scheme, to help provide a detailed database of how many of this business type operate in Wales, as well as help to ensure a “consistent standard” in the sector.
You can respond to the consultation on the Welsh government’s site.
Local licensing schemes could apply in your area
Calls to push back the introduction of the compulsory HM Revenue & Customs’ Making Tax Digital scheme have been answered, giving landlords more time to adjust to a new method of reporting income tax.
The government wants to increase efficiency and cut fraud by making landlords with an income of £50,000 or more use new software to keep digital records. The digital tax scheme was due to be introduced in April, but it has now been delayed until 2026. Once introduced, HMRC will require returns to be submitted quarterly rather than annually.
Rental demand may grow stronger but missed rental payments could rise
An increasing number of people simply cannot afford to get onto the property ladder and the number of transactions is predicted to drop by a fifth according to UK Finance – meaning the need for rented properties is as important as ever.
Higher mortgage rates and inflation will likely result in landlords pushing up prices as they cater for the demand and try to generate a higher rental yield. The amount spent on rental payments increased by 9% during 2022, according to Nationwide. However, renters may not be able to afford the increases.
In the last month, Which? found that renters were more likely to miss a housing payment (6.4%), than mortgage holders (2.5%).
With budgets squeezed further by the cost-of-living in the new year, tenants may struggle to meet their repayments. An increasing number could fall into arrears, meaning landlords will face a shortfall in the money owed to them.
What landlords can do to better accommodate tenants
Even though the legislation changes and new laws can potentially benefit both landlords and tenants, as a landlord, it makes sense to make your tenants as comfortable as possible – most will expect their properties to be fully furnished.
Bristol ranks as the second most profitable location for landlords who furnish or are looking to furnish their properties, with the average monthly income being £2,038. Following closely behind is Brighton and Hove, where landlords can expect £1,898 per month for their furnished property, giving them a yearly income of nearly £23,000.
The vast majority of tenants in England and Wales are willing to pay higher rents for furnished property, which is why smart landlords are buying furniture packages to save money in the long run and enjoy higher rental yields.
Let Us Furnish is a leading provider of furniture packages for landlords across the UK. We have packages for all budgets and furnishing requirements.