The current situation presents a number of challenges for residential and commercial landlords alike, the most pressing of which is a potential loss of rents.
Across the sectors there are a number landlords concerned about their tenants ability to pay rents, from the commercial tenants who have been forced to close their business to the residential ones who may unfortunately have suffered a reduction in income.
Protection for residential tenants
At the end of last month, the Government announced a package of measures designed to protect tenants in light of Covid-19. These include a requirement for landlords to give tenants three months’ notice before seeking possession, and therefore starting court proceedings, applicable until 30 September 2020 but both this date and the three month period can be extended. From 27 March 2020 all ongoing housing possession action was also suspended, meaning that no current cases or cases about to commence will reach eviction stage. This suspension was initially for 90 days but could be extended – read more on GOV.UK here.
Protection for commercial tenants
Last Thursday, further measures were announced to protect high street firms from aggressive debt recovery and temporarily ban the use of statutory demands and winding up orders where a company cannot pay its bills due to Coronavirus. Government is also laying secondary legislation preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent – read more on GOV.UK here.
However, while support packages have also been announced for employees and the self-employed, for those who rely on income from their property investments, there is currently no such support.
It is undoubtedly a tricky situation, some of our clients are negotiating with tenants over temporary reductions in rent decreases, or a payment holiday with catch up payments later on down the line made over a number of months. They have done this on the basis that they would rather try to keep a good tenant than have an empty property. Some tenants may be asking if they can use their deposit to cover rent payments they cannot afford, while this is possible by agreement, you need to check with your deposit protection scheme provider.
If changes to the rental agreement are necessary, a conversation with your tenants is the best start to either pre-empt any future issues or try to find a solution, but whatever is agreed should be documented in writing.
Your Income Tax position
From an Income Tax perspective, for rental properties held outside of a corporate structure, the default now is that you are taxed on rental income on the ‘cash basis’ i.e. on amounts actually received. So if your rents are not paid, you should not be taxed on them until you (hopefully) do receive them.
Landlords with mortgages over their rental properties could also consider approaching their lender to ask for a payment holiday, if they will have difficulty in meeting their payments.
Capital Gains Tax on Selling
Finally, although it may not be a favourable time, you may be considering selling the property to release some much needed funds. Tax advice should be sought before doing so, as there are likely to be Capital Gains Tax consequences. From 6 April 2020 new Capital Gains Tax reporting rules also came into force for the sale of UK residential property – read more here.
If you would like more information or tax advice concerning your rental property, please contact a member of our tax team.
We are happy to advise on your individual circumstances – you can contact Rob or the team on 01242 776000 for a call back or email firstname.lastname@example.org.