Your tenant can give notice to end their tenancy agreement provided they can find an acceptable replacement tenant for you. If they can't find a replacement tenant, they will be responsible for the rent until the end of the tenancy agreement, even if they have physically left the buy-to-let property.
In any case, your tenant cannot end the tenancy agreement during the first three months of their tenancy.
If you rent out a room in your house to a lodger and you are an owner-occupier, or a tenant who is sub-letting, the first £4,250 of any income is tax free, i.e. a rent of £81.73 per week is tax free.
This means that you have in your own house access to over £4,000 income tax-free every year!
If the rent is higher than £4,250, you either elect to pay tax on the surplus above £4,250 (without relief for expenses) or you can treat the arrangement as being a furnished letting and prepare accounts.
This relief is available whether you rent out just one room to a lodger or you run a bed & breakfast business from your house.
If you let out holiday accommodation, the definition of furnished holiday lettings is as follows:
The income is treated as earned income (a trade) attracting capital gains tax rollover relief and entrepreneurs’ relief.
Tax-saving ideas worth thinking about...
However, don't buy the accommodation with a substantial mortgage because HM Revenue & Customs may regard your motives as not being commercial and don't forget about the VAT consequences if you are VAT-registered.
If you receive income from furnished property letting, it's taxed under the property income rules.
If you provide laundry, meals, domestic help, etc. for your tenants, then you may be able to claim that you are running a self-employed business - as you usually can if you are providing holiday lettings (see above).
The advantage of running your property enterprise as a trading business means that there are usually more expenses you can claim against income tax and, in addition, you may be able to claim entrepreneurs' relief for capital gains tax and business property relief for inheritance tax purposes. Although this does depend to a large extent on the amount of services you are providing.
Here are five hints:
To increase your chances of finding a tenant and letting your property you can try these ideas (in this order):
Reduce the rent: If you can't let your property at the price you want, then try reducing the rent - even as little as £2 per week less can make a difference.
Be less picky: For example, if you've asked for non-smokers, then consider smokers. A local cleaning company may be able get rid of the smell quite easily.
Put furniture in the property: This will be expensive and is no guarantee that the place will attract tenants. Consider this if you are getting calls rejecting the property because it's unfurnished.
Consider selling the property: This is a drastic step, because most properties in the UK are lettable - it's just the rent you are asking for that might put off possible tenants. However, if you are experiencing trouble letting it, think about getting out! You could sell it and buy something else.
Normally, the house or flat in which you live is exempt from capital gains tax when you sell it. The property must have been your only or main residence during the period of ownership. During the last 36 months of ownership, the property is always regarded as your main residence even if you don't live there. You can also be absent for periods totalling three years and for any period throughout which you worked abroad. To qualify for these additional periods of exemption, you must live in the property both before and after the absence. In addition, if you had any work which required you to live in job-related accommodation, that also doesn't stand against you for capital gains tax purposes. Any periods of absence in excess of the periods allowed result in the relevant proportion of your sale profit being charged to capital gains tax.
You can also get relief for any period when your house was let up to a maximum of £40,000.
If a specific part of your house is set aside for business purposes, then that proportion of your profits on the sale of the house will be taxable. However, if you don't have any rooms used exclusively for business purposes, you will not normally be liable to any capital gains tax if you sell your house.
Special consideration needs to be given to houses with a lot of land alongside them. If land is sold in excess of what HM Revenue & Customs regards to be a normal area of garden in character for the house that is being sold, then the gain on the sale of such extra land will be subject to capital gains tax.
Within two years of buying a second property, you should send in a letter (called an ‘election’) in which you disclose to the taxman which of your two properties you are treating as your private residence for capital gains tax purposes. Otherwise, the taxman will decide for you and the decision will be based on the facts (i.e. where you have actually spent the majority of your time).
Apart from the annual exemption, you are entitled to set the costs of acquisition of the asset, including purchase price, and the sale costs against the gain.
In addition, if you bought an asset on which you have incurred enhancement or improvement expenditure, then that too will be allowed as a cost. Certain costs such as accountant's fees are not allowed, but if you are looking for allowable costs, and because this subject can be so wide-ranging, we suggest that you talk either to a professional accountant or to HM Revenue & Customs.
Every year there is an annual exemption from capital gains tax and in the year 2012/13 your first £10,600 of gains is exempt. In the case of trusts, it's £5,300.
The rate of Capital Gains Tax is 18 per cent for individuals and partnerships and 28 per cent for trusts.
Yes, ask to see last year's receipts for the fuel used. If it's a system such as gas, ask if it has been regularly serviced. Find a radiator at the highest point in the house and as you turn the air-release screw hold a lighted match to it. If you set up a lighted gas jet it isn't because gas has got into the system, it is the product of some corrosion that has started. It might only need some anti-corrosion fluid putting in the system - on the other hand that might not be sufficient. In any case, all the more reason to have a careful look round for leaks particularly at joints. Leaks also tend to make nasty stains on carpets.
If you live in the property yourself, the short answer is ‘no’. But, if you mortgage your house in order to buy a rental property, the answer will be ‘yes’ - you can set off the mortgage interest against your rental income.
In principle, you are liable to capital gains tax in respect of the sale of any assets used in your business. However, if all of the sale proceeds are invested in further business assets that are purchased within one year before or three years after the sale, you can claim ‘rollover relief ’ as a result of which the gain on the disposal rolled over into the cost of the new business assets acquired. Therefore, no tax is paid until the new business assets are sold, unless they too are replaced.
For these assets to qualify they must be either land and buildings, fixed plant and machinery, goodwill, milk and potato quota or other agricultural quotas including payment entitlements under the Single Payment Scheme. Motor vehicles don’t qualify.
In some circumstances, a landlord may be liable for defects on the property rented out which cause personal injury to his/her tenants (and in some cases to others, lawfully at the property).
Most arrangements relating to residential property create a lease (whether oral or written) and a relationship of landlord and tenant is created.
You duty, as landlord, in relation to hazards on the rental property or to the condition of your buy-to-let property depends on whether the defects arose due to your own positive actions, and whether the defects occurred before the lease was created or while you were in situ.
There are three ways for a landlord to increase the rent payable on an assured shorthold tenancy:
It's difficult for a landlord to increase the rent without the consent of the tenant during the fixed term of the tenancy, as the tenant is under no obligation to agree to a rent increase and cannot be forced to do so. The only tactic a landlord can do to force a rent increase is to serve a Section 21 Notice to terminate the tenancy and, therefore, give the tenant a choice of either signing a new tenancy agreement at a higher rent or vacating the property at the end of the fixed term.
If the tenant feels that the rent is too high, they can refer the matter to the Rent Assessment Committee for review.
Even if the stuff your tenant has left looks like rubbish, you still need your tenant’s permission before you can dispose of it. However, you can remove the items from your rental property and store them, so that you can let out your buy-to-let property to other tenants.
It's advisable to get it in writing from your tenant that she is happy for you to get rid of her possessions. If you can’t get in touch with her informally, then write to her by recorded delivery and ask her to collect her stuff within a reasonable time period (e.g. four weeks).
Give her your contact details, details of the goods she has left behind and where you are storing them. Inform your tenant that if she doesn't collect them, you will sell or get rid of them. Keep a copy of the letter and the recorded delivery slip, so you have proof that you tried to contact her.
If you don’t have a forwarding address for your tenant (and you should always try to get one), you need to show that you have made every reasonable effort to trace her before you dispose of her goods. You could use a tracing agent to find a tenant, who offer "no-find, no-fee" arrangements.
If you still can’t contact your tenant, you can get rid of her stuff in the most advantageous way possible. If her goods are of any worth, don't dump them; sell them. Any money you earn from selling your tenant's stuff is strictly speaking her’s, but you are entitled to deduct any costs you have incurred in selling them (e.g. eBay fees). But do keep a record in case your tenant turns up later demanding her goods – this does happen.
The first thing you need to do is check to see if your lease allows you to have animals in your property. If your lease gives permission and you are considering accepting your potential tenant's offer, then try to find out a bit more about the animal – how big is the dog, what is its breed, is it noisy, how long will your tenant leave the dog on its own in your rental property.
If you're worried about your flat's condition, ask for a bigger deposit from your tenant and add clauses to the lease. You can ask for your rental property to be professionally cleaned at the end of the tenancy or ask the tenant not to leave the dog on its own overnight. This should help to keep potential damage to your rental property to a minimum.
"Avoid the voids" as much as possible by advertising your rental property as soon as your tenant gives notice. Don’t wait for your tenants to move out, as it’s costing you time and money.
Advertising your rental property is very important. To find the best tenant, you must advertise your buy-to-let property in as many places as quickly as possible, as potential tenants are not going to look at just one website. Our partner spareroom.co.uk is a great place to start and its free for landlords to advertise.
Always advertise with good photographs and make sure that your rental property is tidy. Try to make your photos as professional as possible.
Always include a photo of the living room and don't focus on the exterior of your rental property. Tenants are keen to see the inside far more!
Regarding pricing your rental property, make sure that you price yourself a bit more competitively than the market. If local landlords are mostly advertising their rental properties at £300 a week, advertise your rental property at £290. You will lose £500 a year, but you will increase your chances of avoiding a costly void period.
Make your buy-to-let property as desirable and well-priced as possible to attract more potential tenants. Then you have the option of choosing the best tenant, rather than having to settle.
As a landlord, you have two options. Firstly, you could suggest to your neighbours that they address the problem with your tenants and see if they can come to some amicable agreement regarding the noise problem. If you don’t want to get your neighbours involved with your tenants, then secondly, you should speak to them directly.
If you have a good relationship with your tenants, it's vital that you don't go in guns blazing. Before speaking to your tenants, find out from other neighbours whether there really is a problem.
If the other neighbours are unaware of any noise, then you need to speak to the neighbour who complained and explain that nobody else has got a problem with the noise. But if the other neighbours do agree with the person who is complaining, then you need to speak to your tenants.
Ask your tenants politely and in a friendly manner if they can try to curb their noise a little bit. If this doesn’t work, then put it in writing. Most tenancy agreements include a clause that prohibits tenants from making excessive levels of noise out of hours.
After you have addressed the noise problem with your tenants, keep in touch with your neighbour who made the complaint and see if things are improving. If things do not, then as a last resort you may have to take legal advice.