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.
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.
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:
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:
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.
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.
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.
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.