Buy to let may seem like the easiest business for anyone to start. However, just like every other business or investment, renting out your property comes with certain financial responsibilities. Yes, the business could be one of the easier businesses to manage, but it still does include some obligations that you are not allowed to neglect.
Here are some of the major legal responsibilities of a landlord:
If you have used a mortgage to buy the home that you will be renting out to others, you’re gonna need to inform your lender about your leasing plans. It may appear as if the mortgage provider has no right over the property as long as you make on time payments, but it actually doesn’t work that way. You need to have a talk with your lender about your plans to rent out your property as you may need to shift to a more appropriate mortgage type. Regular mortgages are only applicable to homes the owners live in. If you want to lease your property, a different mortgage may be necessary depending on how long your arrangement is.
Landlords need to get themselves informed of all the tax implications that comes with property letting. The first tax related term that you need to know is the Income Tax. Income coming from rental property(s) is added on top of your other income for the year to calculate how much tax you owe. However, there are certain expenses that you can claim to reduce your tax bill. These expenses typically includes your mortgage interest payments if you are using a buy to let loan, as well as the agent fees and maintenance expenses.
The next term that you should make yourself familiar with when it comes to taxes is the Capital Gains Tax. If you sell a home that is only your secondary home, it is most likely that you will have to deal with Capital Gains Tax on the selling profit that you gain. This includes rental properties. However, you can also offset some expenses on this one, such as replacement fixtures and the likes. Even if the expense was made years ago, just as long as you have kept records of such expenditures, you will be able to claim such reductions. You just have to check with an adviser come selling time so you’d know exactly which expenses you can offset from your tax.
There are different tax rules when it comes to holiday rentals. You can rent out your property for the holidays whether for part time or full time tenancy and it comes with different tax rulings.
The Tenancy Deposit Scheme
The Tenancy Deposit Scheme has been introduced to leasing businesses to help protect both the landlord and the tenant when it comes to the tenant’s deposit. As what the law requires, the landlord has to choose which scheme to use in keeping the deposit. Within 30 days of tenancy, the deposit must be submitted and it can never be claimed unless reason for claiming is valid and written in the agreement. Typically, this deposit is allotted for the landlord’s damage repair if tenant caused damages arise, and it can also cover the tenant’s unpaid rent. If unused until the end of tenancy, the deposit would be given back to the tenant, or to both parties, depending on what has been stated on the agreement.
The Legal Responsibilities
Keeping up with the legal part of landlord-ship is just as important as it is mandatory. If you want to protect yourself as a landlord, and if you don’t want to be held liable to the law, you have got to make sure that you take all necessary legal steps for your business.
First and foremost, you need to draw up a tenancy agreement that will explain all the necessary obligations and penalties both parties are agreeing to. This should be the most important document that the tenant and the landlord would sign, so do make sure that you get professional assistance in coming up with the tenancy agreement.
Next, you are obliged to make sure that the property you are renting out is in a good condition. Meaning, it should be a safe place to live in and is completely habitable. You should make sure that the gas and electric appliances that the home comes with are all safe, and at the same time, you should also ensure that the home is preventing fire in all ways possible. Furthermore, an Energy Performance Certificate should be provided before successfully accepting tenants. These, among other possible things depending on the location, should never be neglected by a landlord as he/she starts to process tenancy.
A landlord insurance is also one of the important things to make use of. It isn’t compulsory but it is of extreme importance. You might have heard stories from landlords that say how much damage a tenant can bring to a property. If you have a landlord insurance, this kind of damage should be the least of your problems. Nonetheless, intensive screening can also do wonders in making sure that your property is protected and taken care of. Refer to our post about landlord insurance for more info.
Overall, buy to let business properties come with its own set of responsibilities. It could feel as though it is too complicated at first, but as time pass by and as you get to your second rental property, you would see how manageable things can be. Just as long as you stick to the rules and be a responsible landlord, you’d encounter as little problems as possible. Just keep in mind that you cannot get away from not following what the law says about property letting and always remember that being a hands on responsible landlord is important to keep your business flowing smoothly. Besides, less problems means more profit, so make sure that you encounter as little problems as possible by following all policies and by being responsible. –iLetProperties