Benefit changes are coming

From April 2021, the Government is due to remove the enhanced benefit payments it issued to assist people during Covid-19

We always knew this was a temporary measure and the additional income was a lifeline for many on benefits who were struggling to make ends meet.

Many landlords look advantage of this temporary increase, by rising rents, which was coupled with the lift on the benefit freeze, saw an increase in the Local Housing Allowance rate across the UK

However, these landlords may fall foul of this forward thinking when rates are due to return to original levels in April.

There is a little light at the end of the tunnel, the Government has announced that there will be an increase in benefit levels from April, but only against the original figures, which is some cases could see tenants losing over £100 pm in benefits.

This could see an unpredicted rise in rent arrears when benefit rates are reduced, landlords are advised to check what their tenants benefit levels will be come April 2021

The new rates are here, note the figures in brackets are the original payments not the Covid enhanced rates.

Universal Credit (Monthly rates shown)

Standard allowance

Single

• Single under 25: £257.33 (from £256.05)

• Single 25 or over: £324.84 (from £323.22)

Couple

• Joint claimants both under 25: £403.90 (from £401.92)

• Joint claimants, one or both 25 or over: £509.91 (from £507.37)

  
  

  Housing Benefit

  • Under 25: £59.20 (from £58.90)

  • 25 or over: £74.70 (from £74.35)

  • Entitled to main phase ESA: £74.70 (from £74.35 )

Residential tenants liable to pay SDLT

Stamp Duty Land Tax (SDLT) is normally directly associated with purchasing a property or land rather than with our renting tenants, but it may come as a surprise to know that certain long term renters have had to pay 1% SDLT.

Since December 2003 residential tenancies have the potential to be liable for Stamp Duty Land Tax (SDLT) and with more and more people finding it harder and harder to get their first step on the property ladder, and the average tenancy length being 4.5years, it is highly likely that more and more tenants will find themselves liable to pay this surprising Stamp Duty.

SDLT is levied on the rent paid and calculated on the amount of gross rent for the term of the tenancy. This computation produces an amount known as the Net Present Value (NPV).

NPV is calculated by taking into account the highest 12 monthly rents in the first 5 years of the tenancy. It is done via a complicated formula which maybe the HMRC is only capable of understanding.  If anyone is interested in test it, their online calculator is available here: https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro .

SDLT is calculated across the total time a Tenant takes a tenancy for, up to a maximum of seven years. If a tenant takes a one year tenancy (AST) and then renews for a further year, this will be considered by the Inland Revenue as a linked transaction and the NPV calculation will be based on the gross rent paid for both years, up until 7 years of a linked tenancy for the tenant.

This cycle can be broken if a new AST is signed BUT it MUST have different terms, if a copy AST is signed this does not break the linked transaction of the tenancy, it may be difficult to sign a new AST which does in fact break the linked transaction cycle.

It is worth noting that when calculating the term of the tenancy, it is likely to include both fixed term tenancy and periodic tenancy (where the tenancy continues after a fixed term).

This SDLT is paid by the Tenant.

From 17 March 2006 if the Rent paid by a tenant (NPV) is less than £125,000, no Stamp Duty Land Tax is payable.  If the rent paid (NPV) is more than £125,000, Stamp Duty Land Tax is due

When SDLT is due the Tenant must complete and submit a declaration form SDLT1 to the Inland Revenue within 30 Days of the date the tenancy commences or the date the tenancy was executed, whichever is the earlier.

If the tenant fails to pay in what HMRC describe as a ‘timely fashion’, which actually means within three months of the filing date, the renter could incur a £100 fine.

Where no payment is made after three months passes that penalty will rise to £200, and could continue to rise to the full amount of the tax due if the return is 12 months overdue.

Covid and the stamp duty holiday.

Although the Stamp Duty holiday is currently being taken advantage by many, it does not apply to these renting arrangements. The reason for this is because the scope of the SDLT holiday relates to tax being lifted for buyers rather than renters, which will offer no comfort to those who do not own their homes.