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No matter whether you are a veteran HMO landlord or a beginner investor, you need to be fully aware of any changes that will impact the private rented sector and HMO market. In recent years, there has been an increase in legislative and tax obligations, and there are more changes on the way.
In this blog post, we’ll cover some of the important things HMO landlords need to be aware of right now, in addition to tips to help you navigate these new and upcoming changes!
1. Rental Reforms
Michael Gove, Secretary for Levelling Up, Housing, and Communities, has pledged that the long-awaited Renters’ Reform Bill will be introduced into the House of Commons within the next couple of months. There is still uncertainty about when the policies proposed in the bill will take effect and the exact details of them.
The white paper released last summer ‘A fairer private rented sector’ set out the measures the government was proposing. This included a ban on Section 21 evictions, the creation of a Decent Homes Standard and a landlords’ register, and the cancellation of fixed-term tenancies.
2. Minimum Energy Efficiency Standards
The government also previously announced proposals to increase the minimum energy efficiency standards of privately rented accommodation from the EPC rating of ‘E’ to ‘C’. This change could be phased in from 2025, but this still hasn’t been written into law yet.
The Telegraph recently reported that the government might be pushing the deadline to 2028 for all rented homes. There also could be a cap on costs for landlords at £10,000. This means if any of your HMOs don’t have an EPC rating of ‘C’ or higher you should start thinking about making energy efficient improvements now.
3. Updated How to Rent Guide
The newest version of the How to Rent Guide has recently been published by the government. This guide offers a checklist for tenants, and landlords or agents must issue the current version of the guide at the start of any new tenancy or upon renewal if there’s been an update to the guide.
It forms part of the prescribed information landlords and management agents must provide. If you don’t, it could invalidate a Section 21 notice to regain possession, while this type of eviction notice is still allowed.
The latest version of the How to Rent Guide includes updated information on Smoke and Carbon Monoxide Alarm (Amendment) Regulations 2022, Electrical Installation Conditions Reports, and the fitting of smart meters.
4. Changing Tax Obligations
Over the past couple of years, there have been a number of changes to tax obligations for HMO landlords. And some new ones have taken effect from 6 April 2023.
The Capital Gains Tax annual exempt amount has been reduced from £12,300 to £6,000. This will then be reduced to £3,000 from April 2024. This could impact the amount of tax you pay when selling a property that you’ve earned a gain on.
Corporation Tax is also seeing a change, which impacts those who invest through a limited company. Companies that earn more than £250,000 in profits will be liable to pay 25% Corporation Tax, instead of the previous rate of 19%.
This will likely impact those with larger portfolios the most. But it’s something to be aware of if you make over the threshold, are close to, or are interested in setting up a limited company structure.
4 Tips to Help You Navigate These Changes
1. Don’t Panic
Even though there are a lot of changes afoot, there are still plenty of opportunities in the HMO market. So, find ways to stay on top of the latest and upcoming changes. Make sure you’re aware of everything going on, but don’t panic. It’s still possible to be very successful as a HMO landlord!
2. Understand the Impact on Your Business
Figure out what these tax and legislative changes mean for you as a HMO landlord. Consider how you can adapt your portfolio and find ways to remain profitable and sustainable. Do you need to reduce your overheads and find other ways to scale your business? Or should you urgently update your deal analysis?
3. Create Systems & Processes
It may be helpful to create systems and processes to drive efficiency within your HMO business and ensure you keep up with your legal obligations and the changing legislation. This can help make sure important activities and tasks don’t fall through the cracks!
4. Future Proof Your Portfolio
Running a successful HMO portfolio is all about making sure it works not only today but tomorrow, next year, in five years, and even 10 years down the line. To have a long-term view, you need to ‘future proof’ your properties and get ahead of any potential changes well before they come into effect!
This can be a dry part of HMO property investment. But there are really serious consequences if you don’t keep up with the legislative and tax changes across the sector, so make sure you’re staying on top of all of this!
For more advice and lessons on how to start, scale, and systemise your HMO portfolio, including up-to-date information about legislation and your legal obligations, become a member of The HMO Roadmap!
And if you have any questions about the things you need to be aware of as a HMO landlord, join our free Facebook Group The HMO Community.
About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!