If you’ve rented out a property for a while, you may well be thinking about selling it. This may be even more-so with the introduction stamp duty tax rises, loss of buy-to-let tax relief and minimum energy efficiency requirements. of finance cost relief for landlords. This measure will restrict relief for finance costs on residential properties to the basic rate of Income Tax.
Selling a rental property is common, and it’s reasonably simple to manage as a process. However, you will need to be aware of a few things before you try to sell your rental property. Selling a rental property can be a problem unless you’ve taken care of the following.
At Yes Homebuyers we deal with those wanting to quickly sell their unwanted rental property. We also advise on what issues to look out for before you sell your rental property.
If you have tenants
If tenants are still in the property when you are selling, a couple of things need to be borne in mind. The tenancy agreement is vital here. You should have an agreement that allows the property to be viewed during the last stage of the tenancy.
Bear in mind that you are not allowed to enter the property without the tenant’s permission, and this is something worth considering as your selling process starts.
If you have a mortgage
This could be an issue if you haven’t made final payments on your mortgage. There could well be penalties if you sell before the end of the fixed term of the mortgage. It is best to consult a financial advisor or speak to your lender if you have a mortgage still in place.
Basic maintenance issues
You don’t, generally speaking, have to worry about general maintenance issues. This doesn’t mean that you’re not responsible, but you can reasonably expect tenants to look after the heating system, for example, in a responsible manner.
If damage is caused by the tenant (and remember this can be by accident as well as on purpose) you have the right to charge them for repairs.
Overall, with all damage, whether extensive or minor, you should be keeping an inventory and running checks before the end of a tenancy agreement. This way you will know about the condition of the property, and be able to make arrangements for repair.
Have you checked for structural damage?
You haven’t lived in the property, so you won’t have had a chance to notice any real structural problems. One of the most common structural damage or disrepair happens in the walls. Check for signs of subsidence including cracks thicker than 3mm in the walls, the shape and course of the crack and “rippling” wallpaper”, to name a few.
If improvements were made to the building, especially extensions and so on, you could be facing problems such as bowing or leaning in the walls. Again, this is something you will not have noticed over time.
Finally, take a look at the doors and windows. If they’re starting to stick or jam there could be a serious problem beneath that. The property could actually be suffering some kind of structural movement. It’s worth checking out before you consider putting it on the market.
If you are selling as an investment
You may well have bought as an investment, but if you’re selling to an investor then you need to make sure the following paperwork is in place:
- Evidence of the tenant’s right to rent.
- Certificates that prove the safety of the gas and electric supplies.
- A signed tenancy agreement.
- Full details of any repairs completed or are in process of completion.
- All paperwork given to the tenant, including any paperwork around the deposit and associated costs and responsibilities.
If the property was bought and managed as an investment, then you have to take a look at the issue of capital gains tax. Presuming you have made a profit on the property, you will be liable for up to 28% of the capital gains. This can be a considerable amount, and may well be a factor in you selling the property.
Obviously, this is again something you may well want to discuss with a financial professional, someone who can give you a good overview of your options. It may be worth waiting a while to see what you can ‘walk away with’ before you jump into selling.
Simply put, 28% of any amount is a large amount of money. However, people do this and make it part of their investment planning. So look at the situation carefully with a financial advisor and see what options are available.
Offsetting capital gains
One thing worth considering (and this is something an advisor can help with) is if you have made any improvements to the property and they’ve resulted in capital improvements, you can use this to offset against capital gains tax. This requires some analysis, but it could reduce the tax burden.
Selling a buy-to-let investment property (or a property that you’ve inherited as a tenanted property) can be problematic. But focus on the practicalities and make a plan, and you should come away with a positive outcome.