All Change! Scottish PRS in 2016

The Scottish private rented sector is in for a massive shake up in 2016, with an overhaul of tenancies and the (possible) introduction of rent controls. It is important for landlords with propertiesflag-of-scotland in Scotland to get to grips with the new legislation.

Private Housing (Tenancies)(Scotland) Act

One of the major changes that facing the Scottish PRS will be the coming into force of the Private Housing (Tenancies)(Scotland) Act, which will likely happen later this year.

The Scottish Government’s objective with this Act is to improve security of tenure for tenants, provide protection to tenants from “excessive” rent increases and provide rent predictability.

It will do this by creating a simplified and “modernised” statutory private residential tenancy and removing the no-fault ground for repossession.

In essence, this Act strives to make tenancies indefinite and at the discretion of the tenant for it to end.

The Act limits rent rises to a maximum of one every 12 months, and set out the procedure:

  • Written notice of intention to increase rents, minimum 3 months’ notice
  • If the tenant objects then they can refer the rise to a rent officer of Rent Service Scotland, who will review it and decide the “open-market rate” (which could be increase or decrease the rent)
  • If either tenant or landlord objects, they can appeal to the First-tier Tribunal who will review the officer’s order and make the final decision.

Rent Controls

It also introduces Rent Pressure Zones, for which Local Authorities can apply to the Minister for some or all of their area to become. In these zones the allowable maximum rent increase is strictly limited by regulations laid down by the Minister and passed by Holyrood. Regulations designating a rent pressure zone last a maximum of 5 years.

Although Margaret Burgess, the Scottish Housing Minister, has so far not given an indication of when these changes would be implemented, a date in late 2016 would not come as a surprise.

Additional Homes Surcharge on LBTT

The Scottish Government followed George Osborne’s lead by introducing a Land & Buildings Transaction Tax (LBTT) supplement on the purchase of additional residential properties, aimed at buy-to-let properties. However, unlike Osborne’s Stamp Duty Land Tax (SDLT) additional rate in England & Wales, purchases of 6 or more dwellings at one time will be exempt from the 3% LBTT surcharge.

The new rates payable when purchasing an additional residential property are:

Band Existing LBTT Rates Including Additional Homes Supplement
£0-£40k 0% 0%
£40k-145k 0% 3%
£145,001k-£250k 2% 5%
£250,001k-£325k 5% 8%
£325,001-£750k 10% 13%
£750,001+ 12% 15%
The 3% supplement would be applied to the whole purchase price, and not just the proportion of the price above £40,000.

 May 2016 Holyrood Elections

On Thursday May 5th Scottish voters will be heading to the ballot box in the Holyrood elections. All polls are showing the SNP will be comfortably returned to Government, with the strong possibility of an increase in Holyrood seats. The same polls put Labour and Conservatives within touching distance of each other for second place.

SNP

Having already passed the legislation mentioned above, what next would the SNP have in store for the PRS?

Cursory glances at their manifesto suggest that they are quite content with the actions they have already taken to attack reform the PRS. However, they state that they would look to consult on two more major changes:

  • A national standard for property in the sector, and
  • Energy efficiency regulations in the PRS.

So get set for more burdensome regulations that will push up costs for tenants and decrease supply of rented properties.

On top of these consultations, they will “look into” the possibility of allowing Universal Credit to be paid to landlords direct, which would be a very minor victory although there is no firm promise of action.

The Opposition

It is important to note that none of the parties are calling for the scrapping of the recently passed Private Tenancies Act. However, other parties are proposing a number of additions.

Labour want to go further than the Private Tenancies Act and want to cap rent increases across the whole of Scotland and introduce a charter similar to the social sector to “drive up standards” in the PRS.

The Conservatives have proposed “rent-lock” schemes, whereby if the rent is guaranteed to be charged at “affordable” levels for a set period of time, the Government would:

  • Waive LBTT additional property rate for new buy-to-let investors, and
  • Provide grant funding for the construction of new homes for rent.

A proposed scheme would also guarantee a landlord mid-market rent in return for the use of the property for housing list allocations.

Lower down in the polls the Lib Dems want to enforce strict energy efficiency regulations so that no property with an EPC rating below C is let out. They would make landlords cough up to improve their properties because they “have the capital asset and resources to make the investment, whereas tenants do not”.

A lot of change is coming for the Scottish PRS in 2016. Whatever the result on Thursday 5th, more change for the sector is bound to follow.

 

 

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