Insights and Opinions Meera Chindooroy 06/12/2021

Blog: Energy efficiency and tax allowances - LESA revisited

Back in 2004, the UK Government introduced a ‘Landlords Energy Saving Allowance’ in order to encourage landlords to undertake energy efficiency measures in their properties, with up to £1,500 per property available to claim against tax each year.

The policy lasted just over a decade, with allowances possible for specific types of insulation over this period. But by the time LESA was removed, the Government had been disappointed by the low level of take-up from the sector. Instead of a carrot, they decided to introduce a stick, in the form of Minimum Energy Efficiency Standards (MEES).

Those standards are now subject to review, with the Government expected to respond shortly to its consultation on requiring a minimum EPC C rating for new tenancies from 2025. But there remains the lack of a decent carrot – and for landlords facing up to £10,000 in costs per property under the proposed new cost cap, with no direct financial benefit from the works, difficult decisions are coming.

Why should tax allowances be reintroduced?

If landlords weren’t aware of the importance of energy efficiency before, much has changed since LESA was first introduced, and even since it was abolished in 2015.

Not only do landlords in England and Wales now need to comply with the MEES regulations – currently requiring a minimum EPC E rating, and expected to be a minimum EPC C rating in the coming years – but green issues and the government’s, and the world’s, need to take serious action to work towards net-zero carbon emissions have rapidly risen up the political agenda.

With emissions from residential property energy use estimated to account for 14 percent of total carbon emissions in the UK, it’s clear that change needs to come across tenures.

And with the private rented sector already subject to regulations in this area, amending these is a relatively simple next step for the government to take.

Any move to an EPC C rating won’t be the final stop on the path to net-zero. We expect that in the future there may be restrictions on gas boilers, assessment of properties based on carbon emissions rather than energy efficiency, and higher minimum ratings.

Establishing a new tax allowance, with a higher threshold, will help encourage landlords to take action sooner, and support those landlords who are facing significant costs associated with meeting new requirements.

What is the NRLA proposing?

We are calling for the UK Government to reintroduce a tax allowance for landlords who are undertaking energy efficiency works. The qualifying works should be widened, to cover major upgrades such as the installation of external wall insulation (EWI) and heat pumps.

These measures are increasingly necessary to enable properties to meet higher energy efficiency levels – and are significantly more costly, with the cost of installing heat pump estimated at upwards of £7,000, and for EWI around £10,000 for the average three-bed semi.

Not all landlords will need to undertake these works to meet an EPC C, and the UK Government estimates that the average spend for a landlord to meet an EPC C under the proposed £10,000 cost cap is £4,700. But some will – particularly if they have older properties, which are harder to treat.

The introduction of a new tax allowance would support those landlords who need to undertake substantial works to meet regulations, as well as incentivising other landlords to take action earlier to move beyond the minimum standards.

That’s why we are proposing a new tax allowance, of £4,500 per property, enabling landlords to undertake significant works tax-free. This allowance – together with the other measures we have proposed – will reduce the ultimate cost to landlords as they will not need to pay income or corporation tax on their expenditure.

We know that a significant proportion of landlords are considering exiting the sector due to their concerns about meeting the new MEES regulations. Enabling more to remain and upgrade their properties helps keep tenants in their homes whilst also ensuring those homes will be ready for our net-zero future.

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Meera Chindooroy

Meera Chindooroy

Deputy Director of Campaigns, Public Affairs & Policy

Meera is Deputy Director of Campaigns, Public Affairs & Policy at the NRLA. She joined the National Landlords Association (NLA) in May 2018, having previously worked in both policy development and project management for a range of not-for-profit and public sector organisations. Meera provides political insight both internally and for NRLA members, and lobbies in their best interests. Meera has extensive experience of building partnerships with stakeholders across communities, civil society and government, as well as developing collaborative approaches to policy challenges.

Prior to joining to the NLA, Meera provided policy and engagement support to the chief executive of the Big Lottery Fund, the UK’s biggest community funder. She also developed strategic policy at the General Medical Council, the regulator of doctors in the UK.

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