Landlords no longer required to upgrade energy efficiency
The UK government is facing criticism for ‘backtracking’ on energy efficiency targets for rental properties in England and Wales, but this news is likely to be welcomed by landlords who own older properties that may be expensive or difficult to upgrade.
Currently, any property to let in England and Wales must have an Energy Performance Certificate (EPC) with a rating of E or above, otherwise it cannot legally be let. Under previous proposals, new tenancies would be expected to have a rating of C or above by 2025, while existing tenancies were expected to comply with this upgrade by 2028.
Not having a valid EPC can incur a penalty of £5,000, which was due to be increased to a £30,000 penalty under the discarded proposals.
However, in his recent speech on Net Zero, Prime Minister Rishi Sunak announced that these proposals are now being scrapped, as it is believed to be too costly and difficult for most households to meet those targets in such a short timeframe.
The cost of upgrading EPC ratings
Improving a property’s EPC rating from an E or D up to a C rating could cost anywhere from £10,000 to £20,000, which most households are not able to afford – especially in such difficult economic times for many families across the UK.
Increasing energy efficiency can boost property value and pay for itself eventually via the resulting savings on reduced energy bills, but the upfront costs are the first hurdle. The process of upgrading a property can cost this much because it may require installing double glazing and new installation throughout, as well as replacing gas boilers.
This would have been a large burden for landlords if they were no longer able to let properties without paying to upgrade them to a C rating – as capital expenditure, most of this work wouldn’t even qualify for tax relief against their rental income.
Not only are some much older properties extremely difficult to upgrade, but landlords may also have passed on these high costs to tenants via higher rents.
The future of energy efficiency in the UK
Alongside scrapping the requirement for landlords to upgrade their rental properties to a C-rated EPC in the next few years, the Net Zero announcement also covered changes to other proposals intended to improve the UK’s energy performance.
These include the ban on selling petrol and diesel cars being moved back from 2030 to 2035, and the ban on installing fossil fuel boilers for off-gas-grid homes being delayed until 2035 rather than a phase-out beginning in 2026. Grants for upgrading boilers are also due to increase from £5,000 to £7,500 for heat pumps.
Though new rules for Energy Performance Certificates are off the table for the time being, this could change depending on the results of the next General Election. However, whatever happens, landlords should bear in mind that a good EPC rating will always make a property more valuable and attractive to tenants.
If you are a landlord looking to streamline your operating costs, you could benefit from speaking with our Barnsley accountants. Here at gbac, we can provide various financial services to help landlords and property owners, such as tax planning and Service Charge Account management.