Intimate mortgage lender
You must inform your lender if your property is mortgaged as residential rather than a buy to let. Residential mortgages do not allow you to rent out your property.
However, consent to let can be obtained but you will need to pay a fee or additional interest in addition to your regular rate.
Contrary to buy-to-let mortgages and other forms of financing, consent-to-let agreements are subject to a time limit. It is typically for 12 months or the remaining time on your fixed-term rate. This can be useful as an interim solution.
You could face serious consequences if you fail to tell your lender. It might even be considered mortgage fraud. Your lender may demand that you pay the mortgage back immediately, or even repossess the property.
Tax implications
You need to be aware of your Capital Gains Tax and Income Tax obligations as a landlord.
Income Tax
The rental income is added to all other income earned during the financial year.
This income must be declared on each Self Assessment tax return.
You might be eligible to claim expenses against your rental income thereby reduce your tax bill.
If you have a buy to let mortgage, this includes maintenance costs and fees for letting agents.
To reduce their tax, landlords can no longer deduct mortgage interest from rental income. A tax credit will be granted based on 20% of the mortgage interest. This rule change could result in you paying more tax than you would have previously.
Property income allowance
Property owners can receive up to GBP1,000 in rental income tax-free under the property income allowance
Basic rate taxpayers can save up to GBP200, and higher rate taxpayers, up to GBP400. Joint owners can also claim the allowance for jointly owned property.
Rent income of less than GBP1,000 is exempted from tax.
You can deduct this allowance from receipts if you make more than GBP1,000 in rental income. But thereafter any other expenses cannot be claimed.
The property income allowance will also be applicable to Class 4 National Insurance contributions.
The property allowance cannot be used in conjunction with rent-a-room relief to offset income from renting a room in your home.
Capital Gains Tax
Capital Gains Tax will be charged on any gains (profits) if you sell a property other than your primary residence.
When the property is sold, you can offset capital-related expenses such as replacement of doors with capital gains.
This could be years in the future, so it is important to keep records of such expenditures and provide evidence.
When you are ready to sell, consult a financial advisor or accountant about what you can get back.
Register your tenants’ deposits using a Tenancy Deposit Scheme
These schemes protect tenants’ deposits.
If you are renting your home under an assured shorthold tenancy that began after 6 April 2007, you must deposit the tenants’ deposit in suitable scheme before the expiry of 30 days from start of tenancy agreement as per law.
What fees are you allowed to charge as a landlord
Landlords are not allowed to charge tenants any fees beyond limit.
If the total rent does not exceed GBP50,000 per year, the refundable tenancy deposit is limited to five weeks rent. If the total rent exceeds GBP50,000 per year, the limit is six weeks.
The holding deposits used to reserve a property are limited to one week’s rents.
If the tenant requests to end their tenancy early or for late rent payments, you can still charge fees. You also have the right to pass on costs such as utilities, Council Tax, and TV Licence.
Holiday lettings: Tax rules
Tax rules for holiday rentals that are full-time or part-time differ from private renting.
Your legal responsibilities as landlord
- As a landlord you have many legal responsibilities.
- Drawing up a legal tenant agreement
- Safety of the gas and electrical appliances that you supply
- Fire safety for furniture and other furnishings that you supply
- Energy Performance Certificate provided for the property
- Protect your tenants’ deposits with a government-approved scheme
- If your property is in England, make sure your tenants are authorized to rent it.
Rent Smart Wales
The registration and licensing scheme for Wales is designed to increase awareness about the rights and responsibilities of:
Agents
Tenants
landlords.
A landlord must be fit and proper to hold licence to manage the property by themselves.
Then, they must take and pass approved training.
They can also appoint an agent licensed to manage the property for them.
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