With appologies to non-local authority readers I have had a few interesting questions on empty dwellings management orders this week. It is only two weeks until they come into force. so lots of questions. Here are three of the best.
Q. Once an EDMO has been commenced is the local authority restricted to that course of action or will it be possible to revert to another option if circumstances alter for example a Compulsory Purchase Order?
A. A local authority will be able to revoke an EDMO at any time. Indeed I think that it should be reviewing the situation continually to see whether circumstances have changed. If the owner demonstrates that he/she is able to manage the property and keep in occupied, why not hand it back to them? I’m not sure that I can envisage many circumstances in which it would be a good idea to revoke and make a CPO. The only one I can think of is if the property is in an area that is subsequently declared a clearance area.
Q. I have been advised that it will not be possible to gain entry into a property on the basis of a 'potential' to raise an EDMO and to determine the cost of works involved.I would be grateful for any thought you may have.
A. This is a view I have heard expressed a number of times, and I’m pleased to be able to report that it is incorrect. The Housing Act gives two relevant powers of entry for local authorities these are general powers applying to the whole act and so do not appear in the EDMO sections, but none the less apply to them:
The first is to enter the premises at any reasonable time given 24 hours notice for the purpose of carrying out a survey or examination. This applies prior to any action being taken.
The second is when an EDMO is in force. You will have the right at all reasonable times to enter the dwelling to carry out works.
With both powers you must adequately secure the premises against trespass when you leave.
Q. Could you tell me please if you have had any discussions with the Inland Revenue regarding the tax implications after the service of an EDMO.
In the scenario where a LHA serves an EDMO and then carries out repairs to the property, it would recover the cost of the work by retaining the rent until such time as the monies are recovered. Would the owner of the property have to pay tax on this rental income?
We fund repairs to long term empty dwellings and will recover the cost by receiving the rent until the loan is repaid. I have received an inquiry about the tax implications from the owner of a property which we are about to sign up to our Empty Homes Initiative. The cost of the proposed work is about £40,000. The rental income is likely to be £675 per month. The loan will be interest free. If no tax is due, the loan will be repaid in about 5 years. If tax is due the period will be substantially longer than this and therefore may not make the overall package attractive.
I have tried to get an answer on the tax implications on this issue from the Inland Revenue Help Desk. They have however declined to advise saying it is outside their brief.
This arrangement is very similar to what would happen if an EDMO was served.
A. I'm no tax expert but my understanding is that income tax is only due on the profits made on renting out property. Expenses incurred "wholly and exclusively" for the purpose of the let are allowable expenses and can be offset against the owner's letting income. In normal situations allowable expenses include mortgage interest, general repairs and maintenance, insurance and the agent's property management fees. So no the owner would not have to pay tax on the rent until such time as the local authorities expenses were met and the owner receives "cash" rent.
This does however raise one interesting point. The allowable expenses don't include costs of any improvements to the property. So if the local authority were to build an extension or put in an extra bathroom for example, the costs incurred couldn't be offset against the owner's rental income. The local authority wouldn't be entitled to do improvements without the owner's consent anyway, but it raises an important point. If you were asking the owners consent for improvements it would be as well to explain the tax implications.