Before letting out a property you own, there are a number of steps you need to take. Failing to notify your mortgage lender, insurance provider or HMRC that you are letting a property could lead to very serious consequences, including repossession of the property.
If your property is mortgaged, you must get your mortgage lender's permission before you can let the property. Even if you are letting out a room in your own home, you should inform your lender. Letting the property without your lender's consent may lead to repossession.
If you don't have your lender's permission to let your property to tenants, your tenants could end up with very few rights if the property is repossessed due to mortgage arrears. Generally, if a landlord's property is repossessed, the lender will have to honour any tenancy agreement in place at the time of repossession. If, however, you did not have your lender's permission to rent out the property the lender owes no duty to your sitting tenants.
Failure to notify your lender that you are letting your property could lead to your tenants becoming homeless.
Having adequate landlords' insurance is essential. Your normal residential insurance policy is unlikely to be valid if you have tenants in the property without your insurer's consent. This could apply, even if you have simply taken in a lodger. If you have any concerns, check with your insurance provider. Many insurance companies provide policies targeted specifically at landlords.
When finding an insurer you should consider the following:
- Do you need buildings and contents insurance? Buildings insurance may not cover soft furnishings such as carpets and curtains or any furniture which you have included in the letting.
- Pay close attention to any clauses dealing with periods of unoccupancy, you may be obliged to carry out regular property checks while your property is vacant.
- Check if your policy includes protection against damage and loss of rent.
- Check if your policy applies any restrictions on the type of tenant you can let to.
If you are letting out an apartment in a block of flats, there may be a block management scheme in place. This type of scheme factors the management of the communal areas of the block out to an external company. These schemes may include some insurance provision, check your policy or ask your agent if you are unsure.
The stamp duty system changed in April 2016 so that someone who already owns a property will pay much higher rates of stamp duty on any additional properties that they purchase. There are now two tiers of stamp duty; one for people buying their first or only property and another, higher tier for people who are buying a second or additional property.
If you are thinking about buying a property to rent out, make sure that you speak to a financial adviser first so you are fully aware of all the costs associated with your purchase. A person who already owns a residential property and buys a new property at £100,000 to rent out will have to pay £3,000 stamp duty on top of all the other charges associated with purchasing a property.
You need to declare any rental income. If you are renting out rooms in your own home you only need to declare and pay tax on the income if you receive more than £7,500 annually. HMRC can provide information on your particular circumstances.
Landlords have to pay tax on their rental income, but there are a number of allowable charges that can be deducted on your tax return, including some advertising and accountancy checks. It is essential that you keep accurate records of all your rent collections and payments to agents or other bodies. These records will help you complete your tax return. You must keep your records for at least 6 years. Speak to a financial adviser or contact HMRC to find out more about your tax obligations.
There's a really useful tutorial on the HMRC website which answers many of the questions landlords may have about taxing rental income, how to register with HMRC and what types of expenses are deductible.
If you are letting a property in the UK, but are resident in another jurisdiction, you will still be liable for tax. If your tenants are paying rent directly to you, rather than a UK based letting agent, you will be subject to HMRC's non-resident landlord scheme and should contact Inland Revenue for further information.
It is essential that you understand your responsibility to pay rates on your rented properties. There are guidelines which set out whether the owner or the occupier is liable for rates on a property. Liability depends on the value of the property. If you are unsure who is liable for rates, contact Land & Property Services (LPS). You should always inform LPS of any new tenancy starting so they can amend their records accordingly.
Where the tenant is legally liable for rates, you should inform the tenant of this liability in the tenancy agreement. Where the tenant is legally liable for rates, it may be easiest to leave all responsibility for paying rates up to the tenant. Land & Property Services cannot demand that you pay rates arrears if the occupier, rather than the owner, is liable for rates on the property. But, remember that you will be liable for payment of rates for any periods when the property is unoccupied.
Management of property
Managing rented properties can be incredibly time consuming. As a landlord, you are essentially running a business and need to maintain accurate records and provide good customer service in the same way as any other private company.
If you decide to manage the property yourself, you should be aware that your tenants may call you at any stage and may need you to take urgent action. If a tenant contacts you on a Friday evening because their hot water isn't working, you will have to respond immediately to find someone who can investigate the problem within a reasonable time. When deciding what a "reasonable" timeframe is, you should consider the effect that loss of this amenity is likely to have on the tenant.
If you work full time or spend a lot of time travelling, it may be more useful for you to hire an agent to look after the management of the property. Research your options carefully when choosing an agent and remember that, even if you have appointed an agent, by law you must still provide your tenants with your name, address and telephone number. By choosing an agent who is a member of The Property Ombudsman scheme, you can be assured that the agent promises to adhere to a code of guidance and have a form of redress if you, or your tenant, is unhappy with the service provided.
Appointing an agent may minimise your interaction with your tenants, but you cannot remove yourself from the relationship entirely.
Work out if the cost of employing an agent is worth the saving on your own personal time.
All landlords of private tenacies need to register their details with the NI Landlord Registration Scheme. If more than one person is named as an owner on the title of the property, each party will need to register but only one person must pay the associated fee.
In addition, if your property can be classed as a House in Multiple Occupation (HMO) you will have to apply for a license and pay the associated fee. You won't, however, have to pay the Landlord Registration fee if you've already paid for a HMO license.