This Landlord’s guide and the other pages on this website are intended to give you a high level understanding of some of the important points to consider when you take that first big step into the world of let properties.  Within our organisation we have extensive personal experience of managing and maintaining residential let properties and we have tried to pass on the benefit of this experience through this website.  This information is provided free of charge. 

We have broken down the information into the following categories:

What Property? Landlord Accreditation Schemes Letting or Managing Agents Health and Safety Taxation Houses of Multiple Occupation (HMO's) Tenant Deposit Schemes (TDS) Home Information Packs (HIP's)

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It is important that you carefully research the market where you want to buy your let property. If you decide to research the market yourself, you will be able to gather information from local estate agents, employers, newspapers and from local council.  It’s important that you establish the demand for rented property in the immediate area and what might change this.  Rather than do all this yourself, a local specialist letting agent could help.

General area

You should assess the importance tenants may put on the availability of local amenities such as transport, schools and shops.  Are your tenants likely to be students where access to the local University of College will be most important, alternatively will they be professionals who need access to a mainline rail link.

New or Old?

The age of a property can have a significant impact on the overall success of you let.  As a general rule new properties require less maintenance and may less restrictions than older properties.  On the other hand, older properties often offer larger living accommodation and better access to local amenities like shops and rail links.  The type of tenants whom you intend to let your property to should help you in deciding which way to go, although you should be careful to ensure you fully understand the maintenance costs that may apply on older, less well maintained properties.  

Choose a property you can afford

Obviously, the size of mortgage you can afford will have a major influence on the size and location of your property. Choosing a mortgage is described in more detail in this website.

Planning for vacant periods should be a vital part of your calculations.  Many landlords plan for up to 4 months without an income on their let properties.  Obviously you will still be expected to continue repaying your mortgage so you will need to think about how you will meet your mortgage repayments in these circumstances. This could particularly apply if you choose a property in an area where the supply of rental property exceeds demand from tenants

While the UK the market seems to be remaining buoyant, when considering how much to spend on a property always remember that as well as increasing in value, your property can also fall in value.

Buying ‘Off-plan’

Before buying any property off plan, you should ensure that you carry out extensive research.    While off plan often offers significantly higher returns, it doesn’t come without it’s risks.  Many a property investor has lost large sums of their hard earned capital on properties that either don’t meet the initial specifications or where the development falls flat on it’s face as soon as it started.

Be sure to investigate the track record and integrity of the property developer. In today’s high tech environment developments can be made to look particularly impressive using computer images and graphics.  Don’t be fooled by the glossy brochures and sales speak………

 

Landlord or Property Accreditation Schemes are an initiative which recognises those properties in the private rented sector which are well maintained and well managed. Accredited ensures that properties comply with a range of standards covering such things as gas and electrical safety, general maintenance, fire precautions etc. A more comprehensive list is below

Why apply for accreditation?

Prospective tenants can be confident that a property or landlord which has been awarded accredited status will provide decent, safe and secure accommodation. Landlords themselves can also be confident that their property is of an acceptable standard and that they are providing good quality housing for their tenants.

What are the benefits of being accredited?

Some of the benefits include :-

• An improved image with potential lenders,

• A lower turnover of tenants, with associated cost savings,

• An advantage in attracting new tenants,

• Access to advice on all housing matters, including regularly updated fact sheets on, for example, housing benefit regulations,

• A decrease in the abuse of properties,

• Discount schemes with prefered local suppliers and insurance companies,

• Reduced likelihood of statutory action by the Council.

• Some Colleges and Universities also identify accredited properties on their accommodation lists.

How does the Scheme work?

When an application for accredited status has been received, the property will normally be inspected by an Environmental Health Officer. If the property meets the standards set, it will be awarded accredited status for a fixed period of up to 5 years.

At the end of each year, the landlord will need to certify that the property still meets those standards and will also have to supply the Council with copies of annual gas safety cetificates, electrical safety certificates (every five years) plus any other relevant documentation i.e. fire alarm system servicing if appropriate. Self-certification of properties will be supplemented by spot checks on a percentage of properties each year. Should a complaint be received about an accredited property, there will be an automatic re-inspection. At the end of the accrediation period, the landlord will need to make a new application.

How much does it cost?

In order to cover administrative costs, a fee of around £50.00 may be charged for each property. This is a one-off payment which also normally covers the full accreditation period (E.g. 5 years).  This fee, however, may be waived if the property is a House in Multiple Occupation which has been licensed / registered by the local Council and meets all relevant standards.

How do I apply?

Accreditation schemes are a fairly new initiative and not all councils offer a scheme.  Application forms and information packs will be available through you’re the Private Sector Housing department in local council assuming they have a scheme in place.

Standards Required

In order for your property to be given accredited status, you will need to show that certain standards have been met. The following list gives an indication of the criteria on which the property may be assessed,

• Electrical Safety

• Gas Safety

• Fire Safety

• Suitability for habitation

• Furniture Safety (if let furnished)

• Repair

• Management

• Thermal comfort

• Security

• HMO Licensing (if appropriate)

 

Managing your property

When you have chosen a property, you will need to decide who will manage it for you.  If you manage it yourself, you will be responsible for -

• finding tenants

• checking tenants’ references

• collecting the rent and maintaining the property

• and dealing with problems

Your legal responsibilities
You will also need to be aware of your legal responsibilities as a landlord such as -

• carrying out repairs

• ensuring the safety of gas and electrical appliances

• and ensuring that the furniture and furnishings meet fire safety requirements

Using a managing agent

Given the number of different responsibilities you face as a landlord and the limitations on your own time, you may wish to use a managing agent to look after your property for you.  This will cost you approximately 10% - 15% of your monthly rental income.

 

Safety of gas and electrical appliances

You are required by the Gas Safety (Installation and Use) Regulations 1998 to ensure that all gas appliances are maintained in good order and that an annual safety check is carried out by a tradesman who is registered with CORGI (Council for Registered Gas Installers).

You must keep a record of the safety checks and issue it to the tenant within 28 days of each annual check. You are not responsible for maintaining gas appliances which the tenant is entitled to take with him or her at the end of the letting.

Further guidance is contained in the leaflet Gas appliances – get them checked, keep them safe, available, free of charge, from the Health and Safety Executive (HSE): telephone 01787 881165 or www.HSE.gov.uk.

You should ensure that the electrical system and any electrical appliances that you supply such as cookers, kettles, toasters, washing machines and immersion heaters are safe to use.

New rules for electrical safety in the home came into effect on 1 January 2005 in England and Wales. From this date people carrying out electrical work in kitchens, bathrooms or outdoors or adding new circuits to any part of their house will have to follow the new rules in the Building Regulations. The alternative is to get the work carried out by a suitably qualified electrician.

There is further information in the leaflet New rules for electrical safety in the home or visit: www.communities.gov.uk/electricalsafety.

Fire safety of furniture and furnishings

You must ensure that any furniture and furnishings you supply meet the fire resistance requirements in the Furniture and Furnishings (Fire) (Safety) Regulations 1988, unless you are letting on a temporary basis whilst, for example, working away from home. The Regulations apply if the let is for a longer period or for a series of lets, where the property is regarded primarily as a source of income rather than your home. If you are not sure whether the regulations apply to you, seek advice from the Trading Standards Department of your local authority.

The regulations set levels of fire resistance for domestic upholstered furniture. All new and second hand furniture provided in accommodation that is let for the first time, or replacement furniture in existing let accommodation, must meet the fire resistance requirements unless it was made before 1950. Most furniture will have a manufacturer’s label on it saying if it meets the requirements. Further guidance can be found in the booklet A Guide to the Furniture and Furnishings (Fire) (Safety) Regulations. This can be downloaded from www.dti.gov.uk.

 

Letting residential investment property is treated as running a business - even if you only let out one property. And if you let out more than one property in the UK, they'll all be treated as a single business.

Whether you let one or several properties, you're taxed on the overall 'net profit'. You work this out by:

• adding together all your rental income

• adding together all your allowable expenses

• taking the allowable expenses away from the income

Working out your net profit like this means that you can offset a loss from one property against the profit from others. Your net profit counts as part of your overall taxable income.

Letting all or part of your home

If you let your home while you live somewhere else, your profits from the rent are worked out and taxed in the same way as for residential investment lettings.

The same rules apply if you let part of your home outside the 'Rent a Room' scheme. If you let part of your home this way, you can include a percentage of household costs like gas and electricity when you work out your allowable expenses.

Tax on UK furnished holiday lettings

The tax rules for furnished holiday lettings in the UK are different from the rules for residential lettings. The rules let you:

• reduce your profit by claiming 'capital allowances' for the cost of furniture and fixtures that you provide inside the property you let

• offset any losses against your overall income - not just against your rental income

Also, when you sell the property you may be able to take advantage of extra reliefs that'll bring down your Capital Gains Tax bill.

Tax on overseas property lettings

You'll have to pay tax on income you get from overseas property lettings (whether you bring the money into the UK or not) if you are 'resident, ordinarily resident and domiciled' in the UK. If you are 'resident' but either 'not ordinarily resident' or 'not domiciled' in the UK you may only have to pay tax on any money you bring into the UK. For an explanation of these terms and to find out more read our main article. 

If you've already paid foreign tax on your letting income, you can usually offset this against the UK tax you'll have to pay on it.

Record keeping for landlords

If you let out property, you'll have to keep records of your income and expenses for at least six years - whatever type of letting it is. HM Revenue & Customs can ask to see supporting information for your figures at any point during this time.

Even though you can't claim expenses when you use the Rent a Room scheme, it may still be worth keeping proper records. You'll need them if you decide to opt out of the scheme later.

Declaring and paying tax on your rental income

If your taxable income from rent is £15,000 or more in a tax year you must declare it on the full Self Assessment tax return. If it's under £15,000 you may be able to complete a shorter four-page return. If it's under £2,500 your Tax Office may be able to collect any tax you owe through PAYE (Pay As You Earn) if you already pay tax this way.

Further information is also available at www.direct.gov.uk

 

On 6 April 2006 mandatory HMO licensing came into force across England. Landlords whose property is classed as a HMO should read on to find out what they need to do to prepare. Licensing will raise the standard of accommodation for people living in HMOs.

Why does it exist?

Mandatory licensing for HMO landlords aims to raise standards of accommodation in the private rented sector.  HMOs provide essential affordable housing for many tenants who need it. HMO licensing is intended to ensure that all these properties
enjoy a decent minimum standard of management. Raising standards of management will benefit tenants and the wider community as well as landlords who already manage their properties well.

Collectively, badly managed properties can drive down values in an area, which many landlords find frustrating.

What is a 'House in Multiple Occupation'?

Under the changes in the Housing Act 2004, if you let a property which is one of the following types it is a House in Multiple Occupation:

• An entire house or flat which is let to 3 or more tenants who form 2 or more households and who share a kitchen, bathroom or toilet. (For a definition of household see the relevant question under faqs.)

• A house which has been converted entirely into bedsits or other non-self-contained accommodation and which is let to 3 or more tenants who form two or more households and who share kitchen, bathroom or toilet facilities.

• A converted house which contains one or more flats which are not wholly self contained  (ie the flat does not contain within it a kitchen, bathroom and toilet) and which is occupied by 3 or more tenants who form two or more households.

• A building  which is converted entirely into self-contained flats if the conversion did not  meet the standards of the 1991 Building Regulations and more than one-third of the flats are let on short-term tenancies.

• In order to be an HMO the property must be used as the tenants’ only or main residence and it should be used solely or mainly to house tenants. Properties let to students and migrant workers will be treated as their only or main residence and the same will apply to properties which are used as domestic refuges.

Who does it effect?

Landlords letting the largest HMOs, those on three or more storeys with five or more people in two or more households living in them, must apply for a mandatory licence. Some councils may choose to license landlords with smaller HMOs as well.  For the purposes of licensing a household comprises any tenants who are members of the same family living together including couples (whether or not they are married), relatives and half-relatives or step-relatives, adopted and fostered children.  A group of friends sharing a house will not be a single household.

How do I get a License?

You should contact your local authority for an application form.  The local authority will grant a licence if it is satisfied that:

• The proposed licence holder and any manager of the property is a fit and proper person.

• Proper management standards are being applied at the property.

• The HMO is reasonably suitable, or can be made suitable, for occupation by the number of tenants allowed under the licence. To determine this the local authority will consider the number, type and quality of bathrooms, toilets and cooking facilities available for the occupants.

How much does it cost?

Each local authority will set its own fee level for licence applications. You should contact the local authority for the area where your properties are situated to find out the cost of licensing them. Licensing fees should reflect the actual costs of licensing a property with a fee structure which is fair and transparent.

 

From 6 April 2007, new rules will apply to all new assured shorthold tenancies (ASTs). They place a duty on landlords and letting agents to belong to a statutory Tenancy Deposit Scheme (TDS) if they take a deposit from tenants for an AST.

As a landlord you must provide the tenant with the contact details of the scheme protecting their deposit.

You will be able to choose between two types of scheme: a single custodial scheme and two insurance-based schemes.  On a personal level, we have opted to use the Custodial scheme for the following reasons:

• The premiums on insurance schemes offered were unacceptably high and our view was that unscroupulous landlords would ensure that these would continue to rise

• We believe that by ensuring we have robust legal documentation in place and clear evidence of the condition of the property at the outset we will be adequately protected.

Custodial scheme

• The tenant pays the deposit to the landlord;

• The landlord then pays the deposit into the scheme;

• Within 14 days of receiving a deposit, the landlord must give the tenant the prescribed information (to be set out in secondary legislation) about the scheme being used and the tenancy;

• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, they will tell the scheme which returns the deposit, divided in the way agreed by both parties;

• If there is a dispute, the scheme will hold the amount until the dispute resolution service or courts decide what is fair;

• The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will used to offer interest to the tenant, or landlord if the tenant isn’t entitled to it.

Insurance-based schemes

• The tenant pays the deposit to the landlord;

• The landlord retains the deposit and pays a premium to the insurer - the key difference to the custodial scheme;

• Within 14 days of receiving a deposit, the landlord must give the tenant prescribed information (to be set out in secondary legislation) about the scheme being used and the tenancy;

• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord returns all or some of the deposit;

• If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved.

• If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

Example

A tenant pays a deposit of £1000. At the end of the tenancy, the landlord says he wishes to keep £200 to pay for replacing damaged furniture. The remaining £800 will be returned to the tenant.>

The tenant disagrees, claiming the furniture was damaged when they moved in. Both agree to go to Alternative Dispute Resolution (ADR), so the disputed £200 will be transferred to the scheme administrator until the dispute is settled.

In each scheme, the deposit must be returned within ten days of the landlord and tenant agreeing how the deposit should be divided, or within ten days following notification of an ADR/court decision.

Who will run the schemes?

The Government awarded contracts to three companies to run its tenancy deposit schemes on 22 November 2006.  The three schemes are:

• The Deposit Protection Service (The DPS) - the only custodial deposit protection scheme – is free to use and open to all Landlords and Letting Agents. The service is funded entirely from the interest earned from deposits held. Landlords and Letting Agents will be able to register and make transactions online. Paper forms will also be available should internet access be an issue. The scheme will be supported by a dedicated call centre and an independent dispute resolution service.  For more information, visit www.depositprotection.com or call 0870 707 1707.
  

 

What's in a Home Information Pack?

The Home Information Pack contains important information that buyers and sellers need to know. From the Summer of 2007, anyone marketing a property, or their representative, will be legally required to have a Home Information Pack and make it available to potential buyers of the property.  The intended 1st June 2007 deadline was put back until 1st August 2007 due to a legal challenge from the Royal Institution of Chartered Surveyors.

For sellers, providing a Pack upfront should reduce the likelihood of any nasty surprises in the selling process that could delay the sale, as buyers will be able to make more informed decisions about purchasing their home.

For buyers, the Pack provides essential information about properties they are considering buying, free of charge.

What does a Pack contain?

Compulsory documents
The following compulsory documents must be included in a Home Information Pack:

• Home Information Pack Index

• Energy Performance Certificate

• Sale statement

• Standard searches

• Evidence of title

• Additional information for leasehold and common hold sales, where appropriate.

Optional documents
Some documents in the Home Information Pack are optional. These include:

• Home Condition Report

• Legal summary

• Home use/contents forms

• Other documents

If certain documents (i.e. searches, evidence of title for unregistered home and leasehold/commonhold information) cannot be obtained in time, sellers can start marketing with a Pack that includes an index, sale statement, evidence of title and an Energy Performance Certificate only.

However, the seller must be able to show that the missing items have been commissioned, and are expected to arrive as soon as practicable - certainly no later than 28 days of the property being put on the market.