Malkit Purewal and Sanjay Kumar are multi-award-winning developers from Savoys Properties, who have been in the property business for over twenty years and have specialised in commercial-to-residential and houses in multiple occupation (HMOs) for over ten years.
From their extensive experience in the property industry, the duo now shares their list of the top ten legal essentials for property investors in 2024.
Before buying a property, it's crucial to determine how you'll legally own it and structure your property business. Currently, you have several options for purchasing property, including:
Individual Name(s)
This used to be the popular choice for landlords until July 2015, when the then Chancellor, George Osborne introduced Section 24 of the Finance (No.2) Act 2015). Basically, by April 2021, a landlords’ ability to deduct most of their finance costs, including mortgage interest and arrangement fees, from their rental income before calculating their tax liability, was restricted. As a result, landlords now pay tax on the gross income they earn from rental properties. The act was phased in over a five-year period, between April 2017 and April 2020, meaning landlords paying the higher rate tax, would only be able to claim tax relief at the basic rate of 20%.
Limited Company
Limited companies have now come the preferred choice for many landlords, since July 2015. However, owning a property in a limited company brings associated legal requirements, including filing returns to both Companies House and HMRC.
Corporation tax is currently 19%, however, property owners should be careful when moving money, as dividends are taxed at personal, annual self-assessment level.
Limited Liability Partnership (LLP)
An LLP is designed to be a halfway point between a traditional partnership and a private limited company. For those who like the idea, it’s an opportunity to have the benefits of a partnership, while also limiting your exposure. An LLP is likely to be a partnership between two individuals.
The income is still personal income and will be taxed as such. Tax can, therefore, be higher than you’d pay as a limited company and profits cannot be retained in the same way.
Trust
When a property is bought in a trust, a person or company holds the property in trust for the benefit of the beneficiaries. A ‘trust deed’ will be established, setting out the rules for the running of the trust. This might be used for a number of reasons; for example, a property might be held in trust for minors until they grow up. Alternatively, they might be used to mitigate inheritance tax liabilities.
The trust deed must make it clear that the trust has the power to borrow money. Securing finance for properties held in trusts can be extremely difficult, because lenders will look to see where the personal liability lies; a trust structure can mean this isn’t clear.
We would highly recommend everyone gets advice from property specialist accountant before deciding how to structure your property business.
We have found that our solicitors are key to growing our property business. You need solicitors that can complete deals under time pressure, find solutions to issues, ensure there are no restrictions for modifying the property and not impacted by Article 4, and there are no planning issues.
If the property you are buying is an HMO or will be converted into an HMO, then there are guidelines to follow. Guidelines for minimum HMO room sizes were also introduced, which landlords legally need to adhere to and are listed below:
Obligation to notify the local housing authority of any room in the HMO with a floor area of less than 4.64 square metres.
Ensure that the floor area of any room in the HMO, used as sleeping accommodation, by one person aged over ten years, is not less than 6.51 square metres.
Ensure that the floor area of any room in the HMO, used as sleeping accommodation, by two persons aged over ten years, is not less than 10.22 square metres.
Ensure that the floor area of any room in the HMO, used as sleeping accommodation, by one person aged under ten years, is not less than 4.64 square metres.
Ensure that any room in the HMO with a floor area of less than 4.64 square metres, is not used as sleeping accommodation.
From 1st October 2018, the government has made it mandatory for you to apply for a licence if all of the following apply:
It is rented to five or more people, who form more than one household.
Some or all tenants share toilet, bathroom or kitchen facilities.
At least one tenant pays rent (or their employer pays it for them).
Furthermore, some councils have brought in additional licensing, where if you are renting a property, you will need a licence or potentially one licence per property, within the borough. Therefore, it is important to understand what licensing is required within the areas you are looking to invest.
Planning is complicated and can be frustrating at times, with the interpretation of the planning laws varying from council to council.
Currently you don’t need planning permission to convert a property to an HMO. However, many councils across the UK have implemented an Article 4 Direction, which requires you to apply for planning permission. Locally, we have witnessed many landlords accidently falling foul of the Article 4 Direction.
Article 4 Directions have not only been used for HMOs but also for household extensions and commercial conversions. Therefore, it is more important than ever to check planning restrictions, to ensure you are able to carry out your proposed works.
When carrying out works to a property, it is important that you are aware of and compliant with building regulations before you start work. We would recommend that you speak to the council’s building control team before you start work, to get their advice.
The council can make you apply for a regularisation certificate, which refers to the process of certifying building works that have been carried out without building regulations approval. The regularisation process enables people to submit a retrospective application relating to the previously unauthorised works. This can be an expensive process, therefore, it’s essential to work with building control prior to starting work.
Legally you require the following valid certificates to let your property:
Energy Performance Certificate.
Gas Safe Annual Gas Safety Check (if you have any gas appliances).
Electrical Installation Condition Report.
Emergency Lights Certificate (for HMOs).
Fire Alarm Certificate (for HMOs).
Portable Appliance Test Certificate (if specified by your council).
As a landlord, you have a legal duty for the health and safety of tenants in your property, by carrying out a fire risk assessment if you own multi-unit dwellings or an HMO. A fire risk assessor checks the property has the fire safety measures in place and meets the legal standard including:
Property age and condition.
Persons at risk.
Potential fire safety hazards and risk.
Potential ignition sources and combustible materials.
Fire prevention and management.
Fire safety signage.
Fire safety equipment and maintenance.
Fire safety training and drills.
Means of escape in the event of fire.
Deficiencies in existing fire safety and risk precautions.
An evaluation of your existing emergency fire procedures, training and drills.
When letting a property, you require a legal contract between you and your tenants, which is an Assured Shorthold Tenancy Agreement (AST).
A tenancy can be an AST if all of the following apply:
You’re a private landlord or housing association.
The tenancy started on or after 15 January 1989.
The property is your tenants’ main accommodation.
You do not live in the property.
A tenancy cannot be an AST if:
It began or was agreed, before 15 January 1989.
The rent is more than £100,000 a year.
The rent is less than £250 a year (less than £1,000 in London).
It’s a business tenancy or a tenancy for a licensed premises.
It’s a holiday let.
The landlord is a local council.
As a landlord, you are required to put your deposit in a government-backed tenancy deposit scheme (TDP) if you rent a property on an assured shorthold tenancy that started after 6th April 2007. In England and Wales, your deposit can be registered with:
Deposit Protection Service.
MyDeposits.
Tenancy Deposit Scheme.
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