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‘Green Tax’: What is it and is it bad?

Industry Insight August 30th, 2016
‘Green Tax’: What is it and is it bad?

Arthur looks at what the ‘Green Tax’ is, how it will affect Landlords and if it is as bad as it seems.

Do you own and rent out and Edwardian or Victorian house? Be ready to part with £5000. This is due to the Government’s new scheme, the ‘Green Tax’. As of April 2018, it will be illegal to rent out properties that fall into the F and G categories for energy efficiency – most of which are Edwardian and Victorian. This means buy-to-let landlords will be forced to carry out improvement works.

The suggested improvements under the ‘Green Tax’ include insulation, cavity wall filling and replacing old boilers in order to bring the property up to Group E standard. These changes are all expensive undertakings. However, there has been a hypothetical £5000 cap placed on the improvement works. Richard Twinn, policy adviser at the UK Green Building Council (UKGBC) cited a study that found that out of 3,000 rented properties the average cost of getting up to E standard was about £1400.

The ‘Green Tax’ has been highly criticised by the Residential Landlords Association (RLA). Richard Jones, policy adviser at the RLA claimed it was “an extra stealth tax” on Landlords.

“Unless they make funding available, landlords will be forced to pass these costs on to tenants in the form of higher rents. It could also make being a buy-to-let landlord prohibitive. They could struggle to find such a large amount of money upfront.”

Previously, buy-to-let homeowners were able to apply for loans from the Green Deal scheme. It was then the tenants – benefiting from lower bills – who repaid the loans. However, this is no longer available, meaning landlords may simply increase rents to cover the extra cost.

Can the ‘Green Tax’ help?

Whilst parting with £5000 is something nobody ever wants to do, there may be benefits. Firstly, the benefits will come when trying to find tenants. Energy efficiency is becoming a more important issue for tenants when looking for a property due to spiralling utility costs. Secondly, benefits will come when trying to sell the property. A property with a new boiler and insulation will be able to demand a higher asking price. Finally, landlords could take the opportunity to go ‘Full Monty’ on energy efficiency improvements. As the prices of green measures such as solar panels continue to decrease in cost, it could be a good idea to future-proof rental properties now, rather than waiting to be forced by more green initiatives.

With 330,000 buy-to-let landlords likely to be affected, this is a significant change to the rules. Although the law is being brought in for the right reasons, it has come at a bad time. Landlords now face to possibility of having to pay all agency fees alongside the new Stamp Duty charges, whilst surrounded by a very unstable property market. For the ‘accidental landlord’, this may be too much, forcing them to try to sell.

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