Should I Sell My Buy To Let Property?

28 Jun

There are a growing number of buy-to-let landlords selling up and exiting the private rented sector (PRS). This is largely down to an increase in new regulations and taxes. These have become a major cause for concern, and an issue that the government can no longer afford to ignore. Find an estate agent here.

A number of BTL landlords have divested their portfolios and left the private rented sector (PRS) in recent years. This has led to a significant reduction in the supply of rented homes across many parts of the country.

If you are a landlord deciding whether to sell, take a look at the key things you’ll need to consider before putting your rental property on the market.

Should I Sell My Buy To Let With Tenants Or Vacant?

If you have decided to sell your rental property, it’s important that you talk to your tenants as soon as possible. You never know, there could be a chance that they would buy the property themselves. If this isn’t a possibility, you’ll need to decide whether you want to sell the property as a tenanted buy-to-let or a vacant home.

Both options come with pros and cons:

If you sell a tenanted property, your target market will be limited to other landlords, who might have chosen to stay in the rental business.
The downside of this is that there are lots of administrative hoops you’ll need to jump through.
If you sell a vacant property, you’ll be putting your home onto the open market, which could achieve a higher selling price.
You’ll need to follow the correct procedures to remove your current tenants first.
You may need to spend money renovating the property before you’re able to sell it.

Either way, effective communication and an understanding between you and your tenants are vital. The tenants will need to agree to prospective buyers entering and viewing the property on your behalf, especially if this isn’t specified in the tenancy agreement. The condition of the property when potential buyers look around could also have a big impact on your sale, and your tenants may feel more inclined to keep it in good order if you have a good relationship with them.

Let’s look at both of the above options in more detail…

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Selling A Buy To Let Property With Tenants

Selling a tenanted property to an investor can take less time than putting the property on the open market, as buy-to-let purchases tend to be conducted by more experienced buyers with finances in place, involve fewer chains, and be less emotion-based. The flipside, however, is that you will have to deal with additional legalities; you’ll need to provide the tenancy agreement to the new landlord along with any Right to Rent records, gas safety certificates and inventories. You’ll also need to arrange to have your protected tenancy deposits transferred into the new landlord’s name. The process isn’t hassle-free for the tenants, either – they may have to undergo new referencing checks and sign new contracts with the new landlord after the sale has completed.

Selling a vacant property means having to potentially evict your tenants before the sale. You will need to adhere to the break clauses and contract terms set out in the tenancy agreement. If you are determined to sell the property during the contracted period, come to a suitable agreement with the tenants. Perhaps provide financial compensation in return for them agreeing to move out early. Legally, the tenants have the upper hand in this situation.

If a tenancy period is coming to an end, you have a specified break clause or your tenants are on a ‘rolling’ contract, you can serve a no-fault eviction using a Section 21 notice. This will give them two months’ notice before having to vacate the property. Remember to factor in some time to freshen up the property before putting it on the market.

If you have a buy-to-let mortgage, also bear in mind the loss of rental income during this period.

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Capital Gains Tax

Buy-to-let properties are subject to capital gains tax (CGT) which is charged at a rate of 28% (for higher-rate taxpayers) or 18% (basic-rate taxpayers) on any increase in value that the property has earned. If you’re a basic rate taxpayer, consider that the gain will be added to your income, so this could push you into a higher-rate band.

Everyone has a tax-free capital gains allowance of £12,300 per year in 2021-22 meaning you’ll only need to pay CGT on profits above this threshold.

Can I Reduce My Capital Gains Tax?

It is also possible to offset certain costs, such as what you paid out for stamp duty and conveyancing when you bought the property and any charges associated with selling it, including estate agent fees.

You should also be able to offset any capital improvements you’ve made to the property against your CGT bill. It is not allowed to deduct outgoings on the upkeep of the property or mortgage interest.

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Selling A Buy To Let Property And Your Mortgage

It is important to consider the mortgage implications of selling your buy-to-let property. This is especially important if you have a fixed-rate mortgage. Here, your repayments are set for usually 2 or 5 years (though 10-year deals are becoming more common).

Longer-term fixed-rate deals often come with large early repayment charges; Repayment charges might be as much as 5% in the first year. They may drop to 4%, 3%, 2% and 1% each year until the end of the introductory period.