In just under a year a new legal requirement will be in force for new and renewed tenancies in the private rented sector to have an energy performance rating of ‘E’ or above on an Energy Performance Certificate (EPC). If the property doesn’t meet this standard then it will be illegal to let it for any new tenancies starting on or after the 1st April 2018.
All existing tenancies will need to meet these standards by 1st April 2020.
The private rented sector faces a challenge in meeting the energy efficiency requirements given the age of much of its stock. The English Housing Survey notes that 34% of all homes in the sector were built before 1919 representing a higher proportion than both the owner occupied and social rented sectors. Properties that are this old tend to have solid walls, making insulation much more difficult.
A key difficulty is the funding required for landlords to meet the energy efficiency targets. Nearly, 2 in 3 landlords aspire to keep their properties as energy efficient as possible. However, RLA research has found that of those landlords with properties with an Energy Efficiency Rating of F or G, more than 1 in 3 said that they could not afford the required work to bring them up to a rating of E or above.
If the government wishes to meet its aspirational targets of a C rating by 2030 we feel that more needs to be done to help private landlords to deliver on their ambitions. To support the delivery of current energy efficiency targets we are asking the Government for tax deductions on any recommendations on an Energy Performance Certificate that a landlord undertakes.
Currently landlords are only able to recoup the cost of energy efficiency works through tax relief if and when they dispose of the property through offsetting the costs against capital gains tax.
The offset only relates to the historic costs as the costs cannot be index linked to allow for intervening inflation between the date the work was carried out and the date of sale.
We don’t feel that this is fair especially when the PRS has been hit with other taxation changes such as the reduction in Mortgage Interest Relief and the increase in stamp duty on second homes or homes for rental. There has also been changes to the Wear and Tear allowance so all of these reductions combined leave less surplus funds to pay for energy efficiency improvements.
This sort of tax relief will help the Government to promote their energy efficiency targets. However, it is not a policy that gives landlords something for nothing because landlords have to pay their share. What is does do is reduce the risk of landlords having to increase rent which could possibly push poorer households in the PRS into fuel poverty. We do not want to see an increase in tenants having to chose between paying their rent or heating their properties.
Another advantage of allowing recommended improvements to be tax deductible is that it would be self-policing, as the recommendations are made by a qualified energy performance assessor and would also have a directly measurable cost-benefit, as each recommendation comes with an estimate of its contribution to any reduction in energy bills.
It would also support landlords wanting to ensure that their properties are as energy efficient as possible and not just meeting the minimum required standards. As nearly, 2 in 3 landlords have ambitions to ensure their property is as energy efficient as possible.
In September 2015, DJS Research carried out for the RLA found that 88% of landlords would be more likely to invest in energy efficiency measures if they could be considered a tax deductible repair, so we would really encourage the next Government to look at this as a serious policy idea to ensure the sector reaches the minimum standard and possibly higher.
It is important that the incoming Government recognises that since the dissolution of the Government run Green Deal scheme many Landlords will be confused as to how they can get help, if any to reach these standards. Energy Efficiency has always been a somewhat confusing area of policy for the PRS and the upcoming target will need a concentrated effort from the next Government around both funding and the clarity around EPC methodology.
The RLA has been worried to hear that the Building Research Establishment (BRE) has warned that 100,000 properties have been given incorrect F and G classifications as a result of understating the energy efficiency of homes with solid walls and uninsulated cavity walls.
The RLA are still encouraging their members and Landlords to work towards the required legal standard before 2018 even though we are calling on the Government to delay the implementation date until the EPC methodology has been consulted on and Government has responded. As overall this will ensure that the aim of ‘Warmer and Safer’ homes is met to benefit both landlord and tenant.