Last year, the Financial Conduct Authority (FCA), regulator to financial services firms within its remit, introduced changes within the multi occupancy buildings insurance market. Below we give a summary of what happened and how you can still utilise Capital Allowances to make tax savings and balance out some of the losses from the reforms. 

What happened and why? 

Following the FCA’s reports in September 2022 and April 2023, where it found significant issues in the multioccupancy building insurance market, resulting in poor outcomes for leaseholders, including: 

• leaseholder interests not being considered where they are not the technical customer; 
• lack of transparency, making it hard for leaseholders to challenge costs; and
• remuneration practices, seemingly excessive with high commissions in the distribution chain.

The FCA subsequently published a consultation paper setting out its proposed remedies to address issues with transparency, product design and remuneration practices in the industry. In September 2023 it published its policy statement and final rules. 

So who do the new rules affect? 

The rules are of interest to beyond those regulated by the FCA such as regulated insurers and brokers and will also effect: 

• unregulated firms involved with multi-occupancy buildings, such as property managing agents);
• freeholder owners who are landlords of multi-occupancy buildings; and 
• leaseholder representative groups and individual leaseholders.

What are the new rules?

The Financial Conduct Authority (FCA) has introduced new rules under PS23/14, focusing on reforms within the multi-occupancy building insurance market, specifically aimed at enhancing protections and rights for leaseholders. These changes, which took effect from December 31, 2023, are designed to address concerns over transparency, product design, and remuneration practices within the insurance market for multi-occupancy buildings. Here’s a summary of the key aspects of the new regulations:

• Increased Transparency and Leaseholder Protections: The new rules aim to increase transparency for leaseholders, making it easier for them to identify and challenge poor practices. This includes requiring firms to ensure their products are consistent with the needs and interests of leaseholders, are priced to provide fair value, and that remuneration practices do not lead to poor outcomes.
• Definition of ‘Leaseholder’ and ‘Policy Stakeholder’: The FCA has clarified the definition of ‘leaseholder’ to cover residential leaseholders only, meaning disclosure rules apply solely to insurance policies for residential leaseholders. The definition of ‘policy stakeholder’ has been adjusted to only include natural persons acting outside their trade or profession, excluding commercial entities from being considered policy stakeholders.
• Remuneration Disclosure Requirements: Guidance has been introduced to clarify that remuneration disclosure for leaseholders must encompass all forms of remuneration or financial incentive. This includes contingent remuneration (payments dependent on a policy being taken out) and other post-contract earnings, as part of the ‘remuneration disclosure’ requirements.
• Disclosure Rules Enhancements: Insurers and Brokers may estimate the premium breakdown at the building or dwelling level if an exact figure cannot be identified. Required disclosures include a summary of policy features, the policy premium (at building or dwelling level for portfolio policies), remuneration received by authorised intermediaries, potential conflicts of interest, and the number of alternative quotes obtained.

• Banning Payment/Sharing of Insurance Commissions: In coordination with the Department for Levelling Up, Housing and Communities, there’s an intent to ban the payment or sharing of insurance commissions with property managing agents, landlords, and freeholders. This action is yet to be included in the FCA provisions but demonstrates a commitment to further reforms.
• In addition, on its new page, the FCA stated that ‘the FCA expects brokers to immediately stop paying commissions to third parties (including property managing agents and freeholders) where they do not have appropriate justification and evidence for doing so in line with our rules on fair value.’

These reforms are part of the FCA’s efforts to address significant issues found in the multi-occupancy building insurance market, including poor outcomes for leaseholders influenced by non-transparent practices, poorly designed products, and questionable remuneration practices​.

What does this all mean for you? 

Understandably, this may mean a significant reduction in commissions paid whether you are the freeholder, property managing agent or other third party. 

Here at CPA we implore all property owners to consider Capital Allowances tax saving claims. Whilst these are typically for commercial property, within residential property – savings can be made. For instance in a multi-occupancy building for residential flats, claims can be made on the common areas such as the lobby, lifts, stairway and communal fixtures and fittings. This can amount to significant savings. 

Unlock the Potential of Capital Allowances

As businesses strive to minimise tax liabilities and bolster profits, capital allowances emerge as a pivotal tool. Whether you’re a seasoned entrepreneur or just getting started, understanding the nuances of capital allowances can substantially impact your bottom line.

Thinking of optimising your tax strategy? Connect with us to learn how capital allowances can transform your financial roadmap.

Schedule a consultation with our tax specialists today: