Financial responsibilities if you rent out a property

You might be a professional buy-to-let landlord, or you might rent out your home as an ‘accidental landlord’ because you need to move out of your home to trade up or rent somewhere larger. Whatever your situation, make sure you’re aware of your financial responsibilities. We also offer links to more information on your legal responsibilities.

Watch our short video to learn more about your financial responsibilities if you rent out.

Read a transcript of this video

Inform your mortgage lender

You need to let your lender know someone other than you will be living there.

Depending on how long the arrangement is for, you might need to switch to a different mortgage.

If you’re choosing a property to rent out, read our guide on Buy-to-let property investments.

Tax implications

As a landlord you need to know your Income Tax and Capital Gains Tax liabilities.

Here we offer an overview with links out to more detailed information.

Income Tax

You might have seen that it was announced in March 2016 the first £1,000 earned by individuals renting out their property online, through websites such as Airbnb, would be tax free. If this, or a similar measure is implemented in the future, we will update the site. Until then, tax continues to be payable on this sort of income.

Rental income is added to any other income you earn during the year.

For example, from employment or savings – to calculate your tax liability.

You must declare this income on a Self Assessment tax return each year.

However, you can claim certain expenses to offset against your rental income and reduce your tax bill.

This includes, for example, mortgage interest payments, if you have a buy-to-let mortgage, letting agent fees and maintenance costs.

Buy-to-let landlords can offset their mortgage interest payments and some of their costs against their income.

Higher and additional rates of tax relief are being phased out and will be restricted to 20% for all landlords by April 2020.

These changes mean your taxable income will rise, affecting your tax bill, especially if you’re a higher or additional rate tax payer.

For the tax year 2018-2019, buy to let landlords can offset 50% of their mortgage interest payments against their rental income. 50% of the mortgage interest payment qualifies for a 20% tax credit.

From April 2019 this will change again, with 25% of mortgage interest payments qualifying for offsetting against rental income, and 75% qualifying for a 20% tax credit.

You can find out more about these tax relief changes on Gov.uk.

Capital Gains Tax

If you are selling a property that isn’t your main home – including a rental property – it’s likely you will have to pay Capital Gains Tax on any gain (profit).

You can offset expenses of a capital nature such as replacement windows against capital gains when the property is sold.

As this might be many years later it’s important to keep records and evidence of any such expenditure.

Then when you come to sell check with a financial adviser or accountant what you can claim back.

Read more about Capital Gains Tax on property on the HM Revenue & Customs website.

Register your tenants’ deposits with a Tenancy Deposit Scheme

These schemes are used to protect the tenants’ deposits.

In England and Wales you must by law put the deposits in a suitable scheme within 30 days of the date of the start of the tenancy agreement.

Tax rules for holiday lettings

The tax rules for full-or part-time holiday lets differ from those for private renting.

Find out more about tax on holiday lets on the GOV.UK website.

You have many legal responsibilities to comply with as a landlord, including:

  • drawing up a legal tenancy agreement
  • safety of gas and electrical appliances you supply
  • fire safety of furniture and furnishings you supply
  • providing an Energy Performance Certificate for the property
  • protecting your tenants’ deposits in a government-approved scheme
  • checking your tenants have the right to rent your property if it’s in England.
Find out more about legal responsibilities as a private landlord in England and Wales on the GOV.UK website.

Rent Smart Wales

A new registration and licensing scheme has been introduced in Wales.

It aims to raise awareness of the respective rights and responsibilities of:

  • agents
  • tenants
  • landlords.

If a landlord wants to manage the property themselves, they must prove they’re ‘fit and proper’ to hold a licence.

They must then take (and pass) approved training.

Alternatively, they’ll be able to appoint a licensed agent to manage the property on their behalf.

Private landlords must register with Rent Smart Walesopens in new window. They must also register their properties.

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