Although rental property is something that some people choose to do as an investment, it’s often the case that many people find themselves becoming ‘accidental landlords’ through inheriting a property, moving in together and having a ‘spare’ home or simply being unable to sell your home and deciding that letting it out could be a better option.
Renting out your property may sound like a simple task, however it’s not always as easy as you might think there are lots of different factors to consider that will determine your experience as a landlord. Before you become a fully fledged landlord, make sure you are aware of all the implications, both legal and financial so you know what you are getting yourself in to.
The Right Mortgage
If the property you are planning to let is currently mortgaged, you’ll need to inform your mortgage lender that you won’t be living there any longer. If you currently have a residential mortgage, it may mean having to switch to a buy-to-let mortgage which is likely to have different rates or terms etc.
Finding a Tenant
If you want to make any kind of profit from your rental property, then you’ll want to make sure tha
t your rental income covers any mortgage payments on the property, as well as any other costs such as maintenance, however you’ll need to make sure you set your prices comparatively to other rental properties in the area that are of a similar size/standard.
If you have a reliable, long-term tenant who always pays their rent on time, being a landlord may not seem all that difficult, however it’s not always easy to find these tenants in the first place.
Make sure that you carry out security checks and ask for references before you let them into your property you need to know that any prospective tenant is trustworthy and will pay the rent.
Legal Responsibilities
You have a number of legal obligations as a landlord so make sure you are aware of your responsibilities before letting your property. These include:
- Drawing up a legal tenancy agreement
- Registering with a Tenancy Deposit Scheme
- Providing current safety certificates for gas and electrical appliances within your property
- Ensuring that any furniture complies Fire Safety standards
- Providing an Energy Performance Certificate
Protecting your Assets
Other than doing all the essential security checks at the start of the tenancy, the best way of protecting yourself is to take out a Landlord Insurance policy. This should cover you in the event of any damage to your property, and may also cover any loss of income caused by the tenant. In today’s financial climate it’s well worth considering.
Financial Implications
As a landlord you’ll need to understand the tax implications that rental income brings with it.
Firstly, it will have an impact on the amount of Income Tax that you pay.
Income from your rental properties will be added to any other income that you earn during the year, for example, from your main employment and you will need to declare this on a self-assessment tax return each year.
Similarly to any other form of self-employment, you are able to claim a certain amount of expenses to offset against your income which will help to reduce your overall tax bill. This includes things such a
s interest payments on a Buy-to-Let mortgages, letting agent fees and any maintenance costs that are incurred.
Secondly, you have Capital Gains Tax to consider. When you sell a property that isn’t your main home i.e. your second home or a rental property, you may be required to pay Capital Gains Tax on any profit you make from the sale.