Landlords and Homeowners to Get Tax Relief to Improve Energy Efficiency

Following the Spring Statement this month by the Chancellor of the Exchequer, Rishi Sunak, landlords and homeowners were given the good news that all materials used for improving energy efficiency in their properties would now be VAT-free for the next 5 years, down from the previous figure of 5%.

This reduction in tax represents an estimated saving of £1,000 upfront and will further result in lower energy bills, saving around £300 per year per household. The announcement comes at a perfect time, particularly for landlords who are required to meet new EPC regulations to upgrade their properties and make them more environmentally friendly.

The new EPC (Energy Performance Certificate) regulations stipulate that landlords must increase the rating of their properties to the minimum of a C rating by 2025. This applies to all new tenancies and will be followed by all tenancies by 2028. This could add up to a large bill for landlords, who will be required to make any changes needed to reach the required rate, so the zero VAT on materials will help to keep costs down.

The 5% saving on materials will give landlords an opportunity to reduce their outgoings during periods when their properties are vacant and will in turn help tenants by reducing their energy costs, which will be gratefully received considering the recent increases in rental prices.

Rental rates have increased at their highest annual rate for more than five years, hitting the highest growth seen within the last year. The ONS (Office of National Statistics) has released data showing a 2.3% increase in prices in the private rental sector, the highest seen since December 2016.

The largest rental growth was recorded in the East Midlands, with an increase of 3.8%. London showed the lowest rental price hike, increasing only 0.2%, primarily due to the change in working habits, with many people opting to continue to work from home post-pandemic, according to the ONS. Excluding London, the rest of the UK saw rental prices increase by 3.2% in the last 12 months, up slightly from 3% in the year to January 2022. Looking at each individual country, Scotland leads the way with a rise of 2.6%, followed by England at 2.1% and Wales at 1.4%.

Research conducted by Rentd revealed that the average earnings of tenants fell far below the affordability level for rental prices across all regions of all five nations. This is calculated by looking at the average earnings of a typical renter and using a benchmark of two and a half times the average rental rates. The report found that the average annual wage for those who rent in the private sector was 12% lower than the wider average, with an average income of £28,116.

Across the UK, the average rental price is £968 per calendar month (£11,616 per annum). A tenant would need to have a salary of at least £29,041 to comfortably be able to afford this rental rate. This is a shortfall of £925 when calculating using the 2.5 times wage affordability formula.

With inflation spiralling and the cost of living rapidly increasing, many renters’ dreams of homeownership are becoming unreachable, putting even more pressure on the private rental sector to find more housing stock. The demand for quality, affordable rental properties is on the increase, with both landlords and tenants needing support through these turbulent times.