Introduction
Housing accounts for over a quarter of total UK carbon dioxide emissions and, whilst energy saving measures have helped to reduce emissions in this area, properties within the private rented sector are lagging behind performance in the housing sector. Such properties typically have low energy efficiency levels compared to the rest of the housing sector and consequently emit half a tonne of carbon dioxide more per year. The average private rented sector property in Leeds emits 7.4 tonnes of CO2, whilst the average privately rented property emits 7.2 tonnes of CO2.
One reason for this may be that landlords do not feel there are sufficient incentives to improve the energy efficiency of their properties, or they are not fully aware of what support there is.
There are two incentives available:
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Warm front grants
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Landlords energy saving allowance
The landlord's energy saving allowance was introduced by the Government in April 2004 to encourage private landlords to improve the energy efficiency of their properties. Research consistently shows that privately rented properties are often the least well insulated and so are most in need of improvement. In addition, the most vulnerable people often live in the private rented sector, which makes it even more important that these properties provide an adequate degree of thermal comfort.
The landlord's energy saving allowance allows private and corporate landlords who rent residential property to claim back up to £1,500 per property for the installation of certain energy saving measures. From 8th July 2008, the scheme has been extended to include corporate landlords.
Benefits of energy saving improvements
Landlords may often be reluctant to spend money on improving the energy efficiency of their properties because they perceive there is no advantage for themselves and that all of the benefits will go to the tenants. There are, in fact, many benefits for landlords and the introduction of home information packs and in particular energy performance certificates should help encourage the installation of these measures. From 1st October it will be mandatory to provide prospective new tenants with information about the energy performance of the property:- tenants are far more likely to choose to rent an energy efficient property! Furthermore, if properties have a low SAP (standard assessment procedure) energy rating of less than 35, they are likely to fall short of satisfying the excess cold element of the housing health and safety rating system. This could ultimately result in the local authority taking enforcement action if it is not of sufficient standard.
The benefits of renting energy efficient properties include:
- It will soon be mandatory to provide an energy performance certificate to prospective tenants. By taking action now landlords will be at an advantage when this happens and will not miss out on claiming the energy saving allowance for this financial year
- You can insulate your properties, which will improve their energy efficiency and make them more attractive to tenants whilst also saving money
- An energy efficient property is more attractive, desirable and valuable than one that is inefficient
- A well insulated property costs less to heat, which means that the tenants will be spending less on their fuel bills, making them more able to pay the rent
- Improving energy efficiency can result in reduced condensation, helping to protect the structure of the building
- Landlords will receive a tax rebate on the money you spend on energy efficiency measures
- Tenancies may become longer and more secure if the property is energy efficient. Void periods, repairs and complaints may well decrease
- Tenants will enjoy warmer and more comfortable lives in your properties
- You will be helping Leeds City Council to meet its targets with regard to reducing carbon emissions
- Your reputation as a landlord will be improved
What is covered?
When the landlord's energy saving allowance was introduced in April 2004 it covered only loft and cavity wall insulation. Its remit has been extended every year and currently covers the installation of the following measures
Loft insulation - 2004
Cavity wall insulation - 2004
Solid wall insulation - 2005
Draught proofing - 2006
Hot water system insulation - 2006
Floor insulation - 2007
Who is eligible?
Under section 312 of the Income Tax (Trading and Other Income) Act 2005, landlords who pay income tax may claim the landlord's energy saving allowance on the money they spend on installing loft or cavity wall insulation in a house which they let to tenants when calculating their taxable profits.
Legislation contained in the Finance Bill 2007 extended the lifetime of the allowance from 2009 until 2015 and also enabled corporate landlords who let properties for residential purposes to claim. In addition, from April 2007 the allowance is to be applied per property rather than per building; so for a house converted into three flats an allowance of £4,500 can be claimed.
The landlord's energy saving allowance does not cover holiday lets or resident landlords at the present time.
A sample calculation
The example below shows the potential savings for one property where the maximum amount (£1,500) has been spent on the installation of insulation. If the same work is carried out in multiple properties the tax saving is multiplied by the number of properties.
A landlord with multiple properties could save a significant amount
- Cost of insulation £1,500
- Annual taxable income £20,000
- Income - allowance £18,500
- Total taxable profit £18,500
Saving at 22% income tax £330
Saving at 40% income tax £600
How to claim
The process for claiming the landlord's energy saving allowance is very simple. There is no need, in fact, to actually make a 'claim'. Once you have installed the measures in each property you need simply to complete box 5.36C of the land and property section of your income tax return. The amount that you have spent on the installation of energy efficiency measures up to a maximum of £1,500 per property will be offset against your tax.
Disclaimers and further information
The fuelsavers team are not experts on tax matters and as such we strongly recommend you contact your local tax office or HM Revenue and Customs, for the most accurate and up-to-date information.
Your local The Energy Saving Trust provides a great deal of excellent information on local energy efficiency schemes and can be contacted on 0800 512 012.
Landlord's energy saving allowance extended
The landlord's energy saving allowance (LESA) allows the costs of buying and installing energy-saving items in residential rented properties to be deducted from profits. The allowance can be claimed for all expenditure on loft, solid wall, cavity wall and floor insulation, draught proofing, and hot water system insulation up to a maximum each year of £1,500 per home. When it was introduced in 2004 the LESA was restricted to residential landlords however from 8 July 2008 the scheme was extended and it is now available for private and corporate landlords. The LESA is expected to save at least 150,000 tonnes of CO2 in 2010/11.