Tenants could be waiting months for repairs to be completed in their rental properties after it emerged that around a third of landlords are delaying costly maintenance work until new tax rules are enforced next year.
At present, landlords renting out furnished homes can claim tax relief on 10% of their rental income, even if they do not conduct any work. However, from April 2016, they will only be able to claim for the amount they have actually spent.
Consequently, many landlords are cutting their maintenance spending this year to maximise their tax break under the wear and tear allowance.
A survey of 9,000 landlords found that 31% plan to spend less than £250 on repairs and maintenance this year, while in previous years, just 14% spent this little.
The study, by accountancy firm HW Fisher & Company, revealed that 86% of landlords that rent out furnished property claim the wear and tear allowance, which is paid whether or not they have improved the home’s furniture and fittings.
Around two-thirds of landlords criticised the plan to end the allowance, while 58% believe the current flat-rate system is fairer than the proposed replacement.
The change was announced in the summer Budget, alongside a reduction in buy-to-let mortgage tax relief for those paying the 40% rate. This is due to be phased in from 2017.
The Government’s Budget documents show that cutting the wear and tear allowance is expected to make £205m for the Treasury in 2017-18, and around £165m in subsequent years. The reduction in tax relief on profits is predicted to make £665m per year by 2020-21.
Tax Principal at HW Fisher, Tim Walford-Fitzgerald, says: “The new system is intended to be fairer and more transparent, only giving landlords tax relief for the money they really pay out.
“But the impending change has thrown up an anomaly – landlords can spend nothing on maintenance this year and still claim 10% tax relief on their rental income. And they could save more tax on what they do spend if they delay doing so until after April.
“This is smart tax planning, but it will come as little comfort to tenants struggling with battered furniture and tatty carpets in their homes.”1
Director of flat and house share website SpareRoom.co.uk, Matt Hutchinson, comments: “There have been concerns since these tax changes were announced that they could end up being detrimental to tenants. Let’s hope that doesn’t turn out to be the case.
“Tenants have a right to live in safe properties. Some maintenance jobs, such as structural or electrical work, or issues with gas appliances, ventilation and heating, must be dealt with as soon as they come up, regardless of tax implications.”1
Lobby group Generation Rent’s Dan Wilson Craw says the changes should make landlords more aware of their tenants’ needs, as the current system does not incentivise repairs.
He adds: “In the meantime, if a landlord fails to maintain his properties and they become unsafe, he could be breaking the law. Tenants who are dealing with unresponsive landlords should contact their local council’s environmental health team.”1
Finally, Alan Ward, Chairman of the Residential Landlords Association (RLA), insists: “Tenants are entitled to a safe, legal and secure home, and landlords should not delay spending on essential maintenance and repairs. While big-ticket refurbishments might be better left until the new tax year, it is essential that landlords respond to tenants’ maintenance concerns.
“The RLA believes that there should be a scheme of capital allowance for repair and refurbishment, not just the revised allowance for replacement of white goods and furniture etc., to prevent properties from falling into disrepair or their contents becoming out of date.”1
What do you think of the changes? And have they affected how you are conducting repair work?