Landlords Guide to Safety and Tax
This page is designed to give Landlords a brief guide into Safety and Tax legislation.
Tenancy deposit protection.
From 6th April 2007 legislation under the Housing Act 2004 (as amended by the Localism Act 2011) means that all new tenancy deposits must be protected by one of three government-authorised providers.
The government wants to make sure tenants’ deposits are protected so that:
1. Tenants get all or part of their deposit back when they are entitled to it.
2. Any disputes between tenants and landlords or agents will be easier to resolve.
3. Tenants are encouraged to look after the property they are renting.
At the beginning of a new tenancy, the tenant pays the deposit to Northwood, who must make sure that it is protected.
Here at Northwood Lincoln we use the Deposit Protection Scheme (DPS). This custodial scheme is free to use. We simply puts the deposit into the scheme at the beginning of the tenancy.
Within 30 days of taking the deposit, we must provide the tenant with details of how the deposit is being protected, including:
· The contact details of the tenancy deposit provider selected.
· The landlord or agent’s contact details.
· How to apply for the release of the deposit.
· Information explaining the purpose of the deposit.
What are the tenants’ responsibilities.
Tenants have a responsibility to return the property in the same condition in which they took it on, allowing for fair wear and tear (see our other page). When the tenant moves in, a full inventory is undertaken of the property, including details of its condition, with photographic evidence. The tenant will receive a copy of the Northwood Glossary on Fair Wear and Tear. They will be advised of the circumstances in which the landlord or agent could have a claim on the deposit.
At the end of the tenancy, the condition and contents of the property will be checked against the initial inventory. We will agree with the tenant, within 10 days of the end of the tenancy, how much of the deposit should be returned. Once this is agreed, the deposit will be returned to the tenant in accordance with the guidelines set out by the DPS.
If no agreement can be reached about how much of the deposit should be returned, an independent adjudication service is used to help resolve disputes. The disputed part of the deposit will be held until the dispute is resolved.
Guide to Electrical Safety Requirements.
In recent years, new regulations have been introduced to improve safety in rented residential accommodation. All landlords who own property which is let need to be aware of the implications of the legislation. This information is designed to give a summary of regulations which currently exist and in particular those relating to electrical appliances and their impact on both private and commercial landlords.
The electrical safety regulations1 require that any electrical appliances supplied must be safe. Where their safe use requires, appropriate instruction booklets must also be provided.
Unlike the gas safety regulations, there is no statutory annual testing interval. Yet, in order to meet the requirements, it is still important that the appropriate checks and safeguards are carried out. The regulations require:
· GENERAL SAFETY. All electrical equipment supplied must be safe. This will require that the electrical appliances, including their leads, are checked by a competent and suitably qualified engineer. Unsafe items should be removed.
· LABELLING. All electrical equipment that is manufactured after the 1st January 1997 must be marked with the appropriate CE symbol.
· INSTRUCTIONS. It is recommended that the manufacturer's instructions be provided wherever possible for each appliance that is supplied. This will help to ensure that the tenant uses the equipment safely.
Why is it important?
The penalty for non-compliance with the regulations is a substantial fine or even imprisonment in serious cases.
Electrical safety testing.
It is important that both the fixed electrical installation (i.e. the mains wiring) and any supplied appliances and other equipment are safe. Both are easily tested by a qualified engineer.
· APPLIANCES. Electrical appliances need to be tested prior to the initial letting of a property, and annually thereafter. If an individual appliance is used particularly frequently or in a harsh environment (e.g. wet conditions) then more frequent testing may be required.
· FIXED INSTALLATIONS. It is also important that the fixed wiring circuits are checked for safety. The Institute of Electrical Engineers (IEE) recommends that this is carried out at least every ten years in a domestic environment.
· RECORDS. You should keep a record of all appliances tested and checks carried out.
You can also carry out your own simple checks. There are some important points you should watch for.
· LEADS. Watch out for frayed or worn leads. These may be dangerous and should be replaced immediately by a competent person.
· PLUGS. By law, electrical appliances must not be supplied without a correctly fused plug fitted to it.
New works and repairs.
Under building regulations introduced in January 2005, householders who are planning to carry out electrical work in high risk areas such as kitchens, bathrooms or outdoors, or who intend to add new circuits anywhere in the house, now have to notify the local authority building control department or employ an electrical engineer who is registered with a Part P Self-certification Scheme.
Only small electrical jobs, such as replacing a socket or a light switch, do not need to be notified.
Appliances covered by regulations.
The regulations cover all mains voltage electrical goods designed with a working voltage of between 50 and 1,000 volts a.c. including
· Electric blankets.
· Washing machines.
· Immersion heaters.
General product safety.
For all rented property, there is a statutory right that the landlord maintains the structure and main services serving the property in good repair4 and that it shall be fit for human habitation. There are also general product safety regulations5 that require the property and items in the property to be safe, plus specific provisions relating to any gas appliances or furniture supplied.
The product safety regulations state that any item supplied to a consumer during a commercial activity must be safe and this is deemed to include the supply of rented property.
The following checks and precautions should be observed:
· Discard any damaged items that may be dangerous.
· Provide instruction manuals where appropriate.
· Check for obvious danger signs - broken glass, sharp edges, worn leads etc.
· All repairs or building work carried out on the property should be done in accordance with current building regulations (e.g. use of toughened safety glass in low level glazing)
· Smoke detectors, any supplied fire extinguishers and related safety equipment should be kept in good working order.
House in Multiple Occupation (HMO).
Where a house is occupied as bedsits or by 'persons who form more than one household' further safety provisions may apply and you should seek further advice.
What action is required?
· Before offering a property for let, it is important to check that all installations (especially electrical and gas) are safe.
· Whilst a property is let, an ongoing programme of planned inspection and testing should be implemented on all electrical and gas appliances. Record details of all checks and maintenance.
· Avoid carrying out D-I-Y repairs on electrical equipment.
· Avoid buying or installing second-hand appliances into rented properties.
· Provide instruction booklets for tenants where appropriate.
A guide and summary of the Gas Safety (Installation and Use) Regulations 1998.
The regulations make several requirements regarding gas appliances in properties generally, and some extra demands with respect to rented properties.
All gas installations.
Gas appliances need to be regularly maintained so they run safely and reliably and must only be worked on by a qualified (currently Gas Safe Register) gas engineer.
Heating appliances such as fires, water heaters and boilers, generally need to be serviced once a year. Other appliances may need less frequent servicing and the manufacturer's instructions should be consulted for the correct service interval.
Since October 1994, all gas appliances in rented properties have, by law, been subject to an annual safety check.
Relevant appliances include gas central heating boilers, water heaters, gas cookers and gas fires. Since April 1996, this requirement has been extended to include flues serving any relevant gas appliance. The check must be carried out by a suitably qualified technician and, landlords and agents are required to furnish their tenants with a record that the test has been carried out.
Why is it important?
The penalty for non-compliance with the regulations is a substantial fine or even imprisonment in serious cases.
The regulations require that.
· All work to gas appliances and fittings be carried out by a suitable qualified engineer.
· No person shall install a gas appliance with open flues (non 'room-sealed appliances') in a bedroom (or any room used as sleeping accommodation), bathroom or shower room.
· Where the gas meter is installed in a meter box, the installer should supply the consumer with a suitably labelled key to the box.
· The installer or engineer must perform a defined series of safety checks and tests after carrying out any work on a gas appliance.
· Any person who installs a gas appliance in a property shall leave instructions for the occupier of the premises.
· A person responsible for the premises shall not use or permit to be used any gas appliance that is suspected or known to be faulty or incorrectly installed.
· It is the duty of the owner to ensure that all gas appliances and flues are maintained in a safe condition and are checked for safety at least every twelve months by a suitably qualified engineer. Newly installed appliances must be checked within 12 months of installation.
· Whilst it is not required that installation pipe work is subject to the annual safety check, there is a requirement that such pipework is maintained in a safe condition.
· The landlord (or his agent) must keep a record of the gas appliances in the property, dates of inspection, the defects identified and any remedial action taken. A copy of these records must be provided to each tenant within 28 days. New tenants must be provided with a copy before they move into the property.
· Where there is no relevant gas appliance in any room occupied by the tenant but elsewhere in the premises, a copy of the safety certificate can be displayed in a prominent position in the premises. Copies must be made available to the tenant on request.
· The occupier and owner of the premises must be informed of any defect in any gas appliance or pipework in the property.
Vents and air bricks are often provided in order that gas appliances can draw in an adequate supply of air. Care must be taken not to block or obstruct such ventilation since this can prevent appliances from working correctly.
Chimneys & flues.
The products of combustion also need to be safely vented and they usually escape though a chimney or flue. Some early types of flues (e.g. open flues) may need to be modified to bring them up to current standards.
If the flue or chimney is blocked, waste gases may build up in the room. This can be fatal. Flues must be checked before an appliance is fitted and annually thereafter as part of the gas safety check. Inspection hatches are required to be fitted for any concealed flue after 2012.
What checks are required?
The statutory check will include:
· Check flue is clear, accessible and unobstructed.
· Clean and check burners.
· Pressure test on gas pipe work.
There are some important points to watch for which may show an appliance is not working properly:
· Staining, sooting or discolouration on or around the appliance.
· A yellow or orange flame instead of the normal blue.
· A strange smell when the gas appliance is working.
What action is required?
· Ensure that instruction booklets are available at the property for all gas appliances.
· Avoid buying or installing second-hand gas appliances into rented properties. Never attempt do-it-yourself installations or maintenance.
· Ensure that all gas appliances are checked as soon as possible before letting.
· If used appliances are installed, make sure they are checked by a qualified engineer.
· Make sure that inspections are made on all gas appliances annually and maintenance is carried out regularly.
· Records of the annual maintenance check must be kept for 2 years and a copy given to each tenant within 28 days of the check.
· Check that inspection hatches are present for any concealed flue. After 31st December 2012, non-compliant installations or flues will be labelled as “at risk” and may be disconnected.
A Guide to Lettings and Tax.
This guide to lettings, what records you need to keep and how to make a simple annual return of your net letting income to the Inland Revenue. It does not however attempt to cover the wider aspects of personal taxation. If you are unsure about any aspect of your tax liability, then you are advised to seek further advice from your accountant or financial advisor.
Will I have to pay tax on my letting income?
Not necessarily - it all depends on your personal financial circumstances. For example, if the let property is mortgaged, and the mortgage and related costs of upkeeping the property exceed the rent you receive, then it is possible that no tax will be payable.
Home letting - your tax position.
Income tax is payable on rent received from property which is let. Your tax position will determine whether you pay tax or not. All profit you make from letting should be added to your other taxable income for the year, although the financial records for letting must still be kept separate.
You must pay income tax if the total of your taxable income is greater than your tax allowance.
Rent a room scheme - If you let rooms within your own home, you may qualify for a tax exemption. Contact your tax office for more details
If the property is only partly used for rental business you may be entitled to extra statutory concessions. Your tax office will be able to give you details.
What expenses can be offset against the rent received?
Only those expenses incurred 'wholly and exclusively' for the purpose of the let can be offset against your letting income. These might include mortgage interest (at present the Government is planning to make changes to mortgage relief, again you should independent tax advice), general repairs and maintenance, insurance and of course your property management fees.
What records do I need to keep?
You need to keep a record of all income and expenditure incurred in relation to all lettings. The records should show to whom payments have been made and from whom income has been received.
· INCOME. Under the self-assessment system all non-corporate landlords will be required to report income, expenditure and net profits from their properties for the same period as the fiscal year, i.e. 6th April to 5th April of the following year.
· RECEIPTS. Have you kept receipts for all expenses incurred? All tax payers are required to keep tax records of all purchases and receipts under the Self-Assessment system. You are required to keep the records for at least five years.
· FILING RETURNS. The deadline for completion of the previous year's tax return is 31st of January. If you wish the Inland Revenue to calculate tax due, the completed return must be made by 30th September.
· LATE FILING AND PENALTIES. For late filing there will be a penalty of £1,000 for passing the filing date and a fine of a further £100 if your return is more that six months late. For late payments of tax due (over 29 days late) a surcharge may also be payable.
· OVERSEAS LANDLORDS. Different rules apply to landlords whose usual place of abode is outside the UK (non-resident landlords). See below for information on overseas landlords.
· 31 Jan -Deadline for completion of tax return for previous tax year & payment of any tax due. Payment on account for current tax year.
· 6 April - Beginning of tax year.
· 31 July - Second payment on account due for previous tax year.
· 30 September - Deadline for submitting tax return if you want Inland Revenue to calculate tax due.
· In addition, if Northwood are acting for overseas landlords we will be expected to pay tax on letting income quarterly, 30 June, 30 September, 31 December, 31 March.
A Guide to Tax for Overseas Landlords.
This information is a brief tax guide to describe how rents and tax are handled in the situation where the landlord is resident overseas. It does not however attempt to cover the wider aspects of personal taxation. If you are unsure which forms you need or how to fill them in, then you are advised to seek further advice.
Will I need to pay tax?
All owners of property in the UK are required to pay tax on their letting income unless the income after allowable expenses is less than the individual's personal allowances. However, special rules apply to the UK rental income of non-resident landlords or landlords who live abroad (usually for more than a six month period).
Non-Resident Landlord [NRL] scheme.
The NRL scheme operates for rental income paid on or after 6 April 1996 and replaces the old rules under Taxes Management Act 1970. If you want information about the earlier scheme, ask your tax office.
If you let your property through an agent, then the agent must operate the scheme and deduct tax from your rental income, unless they receive written notification to the contrary. In simple terms, the agent will either:
· If authorised by the Revenue, pay the rental income to their non-resident client GROSS, or
· Deduct tax at the basic rate on net income subject to certain allowable expenses and deductions.
If your tenant pays the rent directly into your bank account they must also operate the NRL scheme and deduct tax, unless the rent is less than £100 per week or they receive written notification from the Inland Revenue's Centre for Non-residents (see below) to the contrary.
The NRL scheme is operated by the Inland Revenue's Centre for Non-residents (CNR). Non-resident landlords can apply to the CNR for approval to receive their rental income gross or with no tax deducted ('approval'). If the application is successful, the CNR will issue a notice and the agent will not be required to deduct tax. Landlords with poor tax histories may be refused approval and, in these cases, agents will be obliged to continue to withhold tax at the current basic rate on the net rental income. It is important to inform the Revenue if your tax situation changes (e.g. if you return to live in the UK) or if your letting agent changes.
How do I obtain approval to receive rental income gross?
Approval will allow you to receive all rental income due without deductions to cover tax liabilities. The forms are available from CNR by phone or directly from their web site at www.hmrc.gov.uk
You can apply for approval if:
· Your UK tax affairs are up-to-date .
· You have never had any UK tax obligations. or
· You do not expect to be liable to UK tax.
Many people are entitled to set personal allowances against their income. If your UK income after allowable expenses is less than your personal allowances, then you will not be liable for tax.
Landlords and agents will be notified simultaneously of decisions to grant or withdraw approval. Approvals can be cancelled by the Inland Revenue if returns are filed late or tax is not paid on time.
Where a non-resident landlord qualifies for approval to receive rental income gross, the landlord should apply for approval as soon as possible. Only tax deductions made in a particular quarter can be refunded by the agent.
What happens if a landlord has no approval?
Your agent will be required to withhold and pay the tax due on your behalf if you are non-resident and if approval to receive gross rental income has not been received within 30 days of each quarter. Quarters end on:
30th June, 30th September, 31st December, 31st March.
Tax will be deducted at the basic rate as a percentage of the quarterly rental income taking into account only cash received and cash paid by the agent. Your agent will issue you with Certificates of tax paid which you should include with your tax return.
At the end of the tax year, you should still declare your letting income on your tax return in the normal way and you can reclaim payment of any overpaid tax.
The scheme applies to the UK rental income of persons whose usual place of abode is outside the UK (non-resident landlords). Landlords may be individuals, companies or trustees.
For tax purposes individuals will not be regarded as having a usual place of abode outside the UK, if they are temporarily living outside the UK for, say, six months or less.
Where property is let jointly by two or more landlords and one or more of them has a usual place of abode outside the UK, the scheme applies separately to the rental income of each non-resident.
HMArmed Forces and other Crown Servants.
The Non Resident Landlords scheme applies to members of HM Armed Forces and other Crown Servants who have a usual place of abode outside the UK even though their employment duties, while performed overseas, are treated as performed in the UK for the purpose of charging their salaries to tax. These individuals were excluded from the old scheme under TMA 1970 for the taxation of rental income of non-resident landlords.