Property Guides FAQ

If you are new to the property game, it's probably best not to. It's time-consuming, stressful and you lose money while the property is not being let out.

If you are experienced, have the time and can afford to do without the incoming rent, then it could be worth your while. Always remember to double the amount you think you'll spend because unforeseen costs almost always emerge.

  • Find out more about a landlord's rights and responsibilities in Residential Lettings.
  • Find out all about tenancy agreements and tenant's rights and responsibilities in Renting: The Essential Landlord's Guide to Tenant's Rights.

If you let out holiday accommodation, the definition of furnished holiday lettings is as follows:

  • The accommodation must be available for holiday lets for at least 140 days per year.
  • The accommodation must be let for at least 70 days in the year.
  • No let must exceed 31 days.

The income is treated as earned income (a trade) attracting capital gains tax rollover relief and entrepreneurs’ relief.

Tax-saving ideas worth thinking about...

  • Rollover of capital gains on the sale of trading assets into the purchase of holiday accommodation.
  • Any gain on the sale of the holiday accommodation may eventually attract capital gains tax at only ten per cent.
  • You can claim capital allowances on furniture and equipment.
  • If you make a trading loss from your holiday lets, you may offset it against your other income or capital gains in the same year or the previous one.

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.

Stamp Duty Land Tax was introduced on 1 December 2003 and replaces the 'old' Stamp Duty on land. In the case of freehold property, the Stamp Duty Land Tax payable by the purchaser is as follows:

  • up to £125,000 - Nil
  • over £125,000 and up to £250,000 - 1 per cent
  • over £250,000 and up to £500,000 - 3 per cent
  • over £500,000 and up to £1,00,000 - 4 per cent
  • over £1,000,000 and up to £2,000,000 - 5 per cent
  • over £2,000,000 - 7 per cent

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.

To speed up the house selling process, the following set of papers should be ready for the house buyer:

  • Property Information Forms
  • Fixtures, Fittings and Contents Form
  • Office Copy entries in the Land Registry registers, and a filed plan
  • Copy of lease (if leasehold)
  • Copy of any relevant Consents (to modernisation, etc.)

It's also advisable to get local water and environmental searches completed.

If you don't know whether or not your house is registered with the Land Registry, you can find out by applying for an 'Index Map Search'. 

You fill in form SIM including a description of the property, enclose the relevant fee and the Land Registry will tell you whether your house is registered, and the title number. 

If it's registered, you can then prove title of ownership by obtaining an official copy of the register. This is done by sending off Form OC1 to the Land Registry, which will then send you a photocopy.

When you are selling your house or flat you should first collect information on two points: how much similar properties have actually fetched, and what opposition there is in the market on this very day. Don't let anyone flatter you into wishing for the moon. There are plenty of estate agencies who, to get a job, will raise your hopes unduly.

Start comparing by collecting details of properties of a similar age and type from your local newspaper's Houses For Sale column. If an estate agent to whom you apply for particulars asks for your name and address give it. When you have found some properties which you think will make useful comparisons, go and view them. Ask the house sellers how they decided on their house sale price. If the way they shape the reply is persuasive, note it for future use; if not, make a note not to say such silly things yourself when your time comes.

Tradition says that house buyers always want something knocked off, so when you have worked out the going house sale price for a house such as yours, add about two per cent on to that figure to arrive at your asking price, thus leaving yourself a little room for negotiation.

What is it like at a property auction? Here's a quick guide to what to expect.

  1. Property Auction rooms welcome anyone who swells the crowd, who is dressed reasonably whether they're going to bid or not, and who will keep fairly quiet during the property auction.
  2. There is always a constant to-ing and fro-ing of people. You can arrive and leave whenever you like, but try not to distract people while bidding on a lot is taking place.
  3. It's not unusual to arrive late or leave after the lot you're interested in, but you should try not to miss the property auctioneer's opening speech and announcements.
  4. Property Auctioneers often seem to comment on vacant seats available at the front of the property auction room, even though lots are no more expensive whether you are sitting at the front or the back. Use the empty seats if you want to, but it's also good to stand where you can see any other bidders.
  5. You can choose whether to sit or stand but if you want to bid, you need to be in a position where you can see the property auctioneer and they can see you easily.
  6. Property Auction rooms usually open about one hour before the property auction starts. Most of the audience turns up in the 20 minutes before proceedings start. Property Auctions often start about five minutes late, but don't rely on this. If you have questions to ask the property auctioneer's staff or solicitors before the property auction, try to arrive half an hour before the property auction starts.
  7. When you arrive at the Property Auction, always check:
    • if there have been any additions or amendments to the lots and lot details;
    • if the lot in which you are interested has already been sold or withdrawn;
    • if the lots are to be offered in alphabetical or numerical order.
  8. If you want to bid, don't be shy about getting the property auctioneer's attention by waving or calling out.

Properties that are difficult to sell: The property auction route has often proved more successful than private selling for properties that are hard to sell. This might be because some people at property auctions are willing to take a chance on a property, particularly if they think it looks like a bargain.

Repossessed houses: Unfortunately for their previous owners, these properties are very common at property auctions. Whilst feeling for the people who have lost their houses, there is no doubt that house buyers benefit from these situations.

Investment properties: Properties that are owned for the income they produce (such as offices or shops) are often included in property auction catalogues. Investors cover a range of buyers from large pension funds right down to individual investors looking for a return on their money.

Here's your essential buy-to-let checklist when looking to buy a buy-to-let property.

Kitchen: Is the kitchen big enough to accommodate a small dining table? This is attractive if there is only one reception room and it turns the kitchen into a kitchen-diner.

Smallest bedroom: If the smallest bedroom is smaller than 6' 6" in any direction, then it's not a bedroom! You need to be able to get a bed in a bedroom, so this room can only be considered as a study or a baby's room. You need to think about this when deciding what type of tenant you are looking for. If you're looking for two professional people to share a two-bedroom flat, then the second bedroom must be bigger than 6' 6".

Bathroom: Is there a fitted shower? A bathroom is a lot more desirable if there is a power shower. If there are two bathrooms then the property is very desirable as a buy-to-let investment, even if one is only a shower room.

Heating: An old heating system can be expensive to replace. If possible, get it checked before you buy the house as a buy-to-let project. It's your legal duty as a landlord to provide heating and to issue a gas safety record.

Electrics: Are the electric sockets old? This will tell you that at some point the whole electric system will need rewiring.

This checklist covers the basics but you also should be considering the buy-to-let properties' potential yield.

  1. The draft contract for the hose sale has been agreed and one of your copies has been returned unsigned to the hose seller.
  2. Satisfactory replies have been received in the house seller's Seller's Property Information Forms or Enquiries before Contract.
  3. You are satisfied with the replies you received to the forms you sent to the council, what you learned on your fact-finding tour and to your water company and enviromental search.
  4. If the Office Copies revealed anything such as a caution or a Matrimonial Home charge, the house seller has obtained cancellation of the registration of such a charge or notice.
  5. You have got a firm offer of a mortgage for buying a house.
  6. If it applies, you have your own house sale tied up. If a deposit cheque bounces, the house sale contract is automatically washed out.
  7. You have checked that everyone over the age of 18 who lives in the house is prepared to move, whether their names appear on the register or not, by getting them to sign a statement to this effect in the contract.
  8. There are no problems with the survey of the property.

  1. Compare the information given in the preliminary enquiries with what the solicitor has written concerning the items, referred to as 'chattels' in the Agreement, which the house seller said they were including in the house sale price you agreed?
  2. Is the amount of deposit for the house sale stated correctly?
  3. Check to whom and under what conditions the deposit is to be paid. You should insist that whosoever receives the deposit does so as stakeholder, because a stakeholder cannot part with the money unless they have been satisfied that completion has taken place.
  4. There should be a clause stating the capacity in which the house seller sells, called 'Title Guarantee Full/Limited'. If such a clause doesn't appear in the draft house sale contract, ask for one to be inserted.
  5. Check that the address and/or description of the property to be sold is correct. If the property being sold is part of an existing registered title, then you should also be provided with a plan, for more detailed inspection.
  6. If you were told that you are buying a freehold, check that it says so in the description.
  7. If the house seller agreed to include items such as carpets in the house sale price, they should be in the house sale contract, but if the house sale price you are paying is just over the level at which stamp duty becomes payable, fix a price for the item (£x) and ask that the clause has added to it 'and £x of the purchase price shall be apportioned to these items'.
  8. Look at the rate of interest (contract rate) in the house sale contract. This is usually four per cent above bank base rate. If it specifies the Law Society's rate, that is four per cent over the base rate of Barclays Bank. You will be expected to pay interest at that rate if you delay completion beyond the date which eventually gets inserted in the house sale contract.
  9. Check the covenants clause so that you know everything there is to know about the property, because you buy property warts and all, and once you are the owner, you will be responsible for seeing that the covenants (if any) are adhered to.

Ask the vendor about the level of service charges and if the sum appears very high for the services that the freeholder seems to provide, ask why. It may be that the building in inefficiently managed which might herald problems later on. You should also ask for copies of the service charge accounts over the last few years, to give you some indication of the consistency and level of charges. Vendors should dig out the service charge accounts over the past few years and have copies ready to give to you or your solicitor in response to the inevitable question!

You should also ask the vendor and his landlord whether there are any proposed 'major works'. These are works which will cost over £1,000 and must be notified to the leaseholders before they can be carried out. It's best to ask this question before you buy so that you don't find yourself landed with a hefty bill for new windows and all the disruption that will inevitably be involved in the work shortly after you move in. The vendor may also be able to give you some idea about how often the freeholder carries out major decorating work (unless it's prescribed in the lease) so you should be able to work out how often you will be faced with a bills for external redecorations and all the paraphernalia which goes with it.

When flat or house buying, you must always carry out a local land charges search. The local land charges search is a series of standard questions designed to give any potential flat or house buyer as much information as possible about the property and is undertaken by your local authority.

Searches have two parts submitted using LLCI and CON29 forms. The LLCI search is a search of the Local Land Charges Register. Examples of what it would tell you are if the property is a listed building, if it's in a conservation or smoke control area. It also tells you if any trees on the property are protected by tree preservation orders.

The CON29 enquiries consist of standard information on local plans for the area, planning decisions affecting the property and if the roads by the property are maintained at the public expense or are private roads. It also tells you any environmental information.

In addition to this local authority search, an environmental search and a separate water drainage search are now required by mortgage lenders.

Custom seems to say that fixtures are permanencies and semi-permanencies that one can't simply pick up and walk away with. Basically, it includes things which are attached to the property. One way of looking at it is whether removal of the thing in question would damage the property. Television aerials, for example, are fixtures. You can put the lamp shade under your arm and walk away with it but the light switch is a different matter. It's the bits and pieces other than what are obvious parts of the house (such as the doors) and what are obviously not part of the house (such as a heavy plant pot in the garden that's too heavy to lift) which cause the trouble. Situations where it's not strictly breach of contract to remove an item but would be a breach of good faith to do so should be avoided.

A sure sign of wiring that has had its day is the plug with round pins. In older houses, during your inspections of the roof space and cellar, look out for any wires that pass across the joists. If you see two element wires twisted together and festooned along, you can be pretty sure some re-wiring is necessary to bring the electrical system up to modern standards of efficiency, and, above all, safety.

The area electricity board will be only too glad to make a visual inspection without charge and they will give a free quotation for any work required. If for any reason the supply is cut off, as it no doubt will be, if there is to be any gap between the time when the house seller leaves and you move in, no reconnection will be made if the whole system is not up to standard.

  1. Is the property freehold? If it isn't, what is the ground rent and how long has the lease to run?
  2. Does the owner have to pay any maintenance charges to anyone apart from builders, decorators, etc., to whom he or she has given specific orders?
  3. Is the road and main drain taken over by the council or do the frontagers have to club up every now and then to have them repaired?
  4. If you are in a business or profession, can you put up your brass plate and can your spouse hang out the washing or are there any restrictions?
  5. Has anyone got the right to traipse across any part of your property? Ever?
  6. If there is any evidence (extra cookers, sinks, etc.) of more than one family living in the property, what guarantee is there that they will all move out, thus ensuring that you get full vacant possession on completion?
  7. Has the property ever been flooded or faced serious risk of flooding?

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.

To complain, apply in writing to the listing officer at the Valuation Office Agency (VOA). This is called 'making a proposal'. Examples of valid reasons are where the property has been reduced in size or physically deteriorated so its value should be lower, or the area has gone downhill; perhaps a factory has been built next door. Alternatively, perhaps the property has been adapted to make it suitable for a person with disabilities - if so, take advice. If the VOA doesn't agree with your proposal, your application automatically becomes an appeal to the Valuation Tribunal after six months.

The answer is that most residential blocks of flats or houses that have been converted into flats have leases that require the freeholder (i.e. the landlord) to take out building insurance. Building insurance is one insurance policy that covers the entire building, including the roof. This is different from "contents insurance", which is insurance covering just the items inside your home. Contents insurance is taken out by an individual homeowner, whether the property is a flat or a house. But it's the responsibility of the owner of the building, the freeholder, to take out building insurance.

It's the obligation of the freeholder to insure the building - even if the freeholder is a company jointly owned by leaseholders of individual flats. None of the individual leaseholders has this responsibility, even if they are shareholders (i.e. owners) of the freehold company.

There are insurance brokers that specialise in providing building insurance for residential blocks of flats.

By the way, if the lease of your flat doesn't identify the freeholder as the person/entity legally responsible for insuring the building, then you have a defective lease and you need to get your lease changed.

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