The ultimate guide to renting out your property
Thinking about renting out your property but not sure where to start? Don't worry, we've got you covered with this ultimate guide to renting out your property in the UK. Whether you're a first-time landlord or looking to expand your property portfolio, there's a lot to consider when it comes to becoming a landlord. Let's dive in!
Why Rent Out Your Property?
There are many reasons why people decide to rent out their property. It could be a financial decision to cover mortgage payments and generate additional income, or perhaps you're looking to build a portfolio of rental properties as a business venture.
How to Rent Out Your Property?
Deciding how to manage your rental property is the first step. You can choose to handle everything yourself or enlist the help of a letting agent like Felicity J. Lord to take care of the administration and management for you. You'll also need to decide whether to offer your property as a single unit or convert it into a House in Multiple Occupation (HMO) for higher rental income.
Talking to Your Mortgage Lender
If you're renting out your property for the first time, it's essential to speak to your mortgage lender. They'll advise you on whether you need to switch to a 'buy to let' mortgage and may require consent to let your property.
Landlord Licensing
Some areas in the UK have licensing schemes for landlords to improve property management standards. Make sure to check with your local council if you need to apply for a license, as there may be different types depending on your property.
Some areas in the UK have implemented licensing schemes for landlords to enhance property management standards. These schemes aim to ensure that rental properties meet certain requirements and provide safe and suitable living conditions for tenants. There are three main types of licensing schemes:
- Mandatory licensing: In England and Wales, it is illegal to rent out a House in Multiple Occupation (HMO) without obtaining a mandatory license. This license is essential for landlords who rent out properties to multiple tenants from different households.
- Additional licensing: This type of licensing may be required in addition to mandatory licensing for HMO landlords. It applies when a council believes that HMOs are not being adequately managed or when the terms of a mandatory license do not cover all necessary aspects.
- Selective licensing: Some local councils may implement selective licensing, which requires all landlords within a specific area to apply for a license or undergo a "fit and proper person" test. This aims to ensure that landlords meet certain criteria to maintain the quality of rented accommodation in the area.
To find out if your local council operates a licensing scheme, it's advisable to check with them directly. Keep in mind that obtaining a license typically incurs a small annual fee.
How much can I rent my property for?
Determining the rent for your property involves considering factors like its size, amenities, local rental prices, and average tenant incomes. Setting the rent too high can deter potential tenants while setting it too low could affect your rental income.
Tax and National Insurance
Income tax
Rental income is taxable, and landlords must calculate their income tax based on the profit made after deducting allowable expenses. Mortgage interest payments qualify for a 20% tax relief. The amount of income tax payable depends on factors such as the tax band, other sources of income, and whether the property is owned personally or by a company. The first £1,000 of property income is tax-free, with any income above this threshold requiring declaration in a self-assessment form.
National Insurance contributions
Landlords may be liable to pay Class 2 National Insurance contributions if their profits exceed £6,725 per year, provided that being a landlord is their primary occupation, they rent out multiple properties, and they are actively acquiring new properties.
What are the legal responsibilities for landlords?
Landlords have various legal responsibilities, including conducting gas and electrical safety checks, complying with fire safety regulations, and performing right-to-rent checks on tenants.
Gas and electrical safety responsibilities for landlords
Landlords are legally obligated to ensure the safety of their rental properties by conducting regular gas and electrical safety checks. Gas safety inspections, conducted annually by a Gas Safe registered engineer, involve a thorough examination and testing of all gas appliances and systems within the property.
Similarly, the Electrical Safety Regulations mandate that landlords arrange for electrical installations in rental properties to be checked every five years by a qualified and competent person registered with an approved scheme. Landlords are required to provide their tenants with copies of both gas and electrical safety certificates to demonstrate compliance with these regulations.
Fire safety regulations
Landlords must prioritize fire safety in their properties by implementing various measures. These include the installation of smoke alarms on every floor and a carbon monoxide alarm in any room with a solid fuel-burning appliance. Additionally, tenants should have access to both internal and external escape routes. It's essential that furniture and furnishings are made from fire-resistant materials to mitigate risks. Moreover, fire extinguishers are legally mandated in HMOs to further ensure the safety of occupants.
Right to rent checks
Right-to-rent checks are a must for landlords and letting agents. It's crucial for landlords to confirm that their prospective tenants are legally allowed to rent a residential property in the UK before agreeing to a tenancy. Failure to conduct these checks or renting to tenants who don't pass them can result in hefty fines. To learn more about how landlords can verify the immigration status of their potential tenants, head over to our dedicated Right to Rent page.
Tenancy Agreement
Creating a tenancy agreement is the next step after finding a tenant. This written contract outlines the responsibilities of both parties involved. Assured shorthold tenancy agreements are the standard type of agreement for private tenants in England and Wales. You can find standard templates online that serve as the foundation for your document, making the process easier.
Protecting The Tenant’s Deposit
Once you've found a tenant, you'll need to draw up a tenancy agreement that outlines the rights and responsibilities of both parties. Landlords are also required to protect their tenant's deposit using a government-backed scheme.
Landlord Insurance
While landlords aren't required to obtain specialized contents and buildings insurance for their rental properties, it's strongly advised that they do so. Standard insurance policies typically don't provide coverage for situations like tenants failing to pay rent or causing property damage. Landlord or "buy to let" insurance offers additional features such as public liability coverage, loss of rent protection, emergency coverage, and legal expense coverage. Keep in mind that premiums may vary depending on the perceived risk associated with the tenants you're renting to; for instance, students might be considered a higher insurance risk compared to professionals.
Taking Back Possession
If you need to regain possession of your property, there are legal processes like serving a Section 8 or Section 21 notice or obtaining a court order for eviction.
How Can a Letting Agency Help?
Managing a property can be overwhelming, especially for first-time landlords. Felicity J. Lord offers a full management service, including communication with tenants, repairs, and replacements, to make your landlord's journey smoother.
Renting out your property can be a rewarding venture, but it's essential to understand the process and your responsibilities as a landlord. With the right knowledge and support, you'll be on your way to becoming a successful landlord in no time!
