Landlord Guide to Letting Property
This guide is designed to help you as landlord understand the various responsibilities that come with the decision to let out residential property.
If your property is leasehold, as opposed to freehold, then you effectively have the right to occupy a portion of a building for the given duration of the lease, for example 65, 99 or 999 years. This form or ownership typically applies to buildings that comprise more than one unit, such as blocks of flats, though there are increasingly more freehold flats and apartments.
If you are a leaseholder you should check the terms of your lease documentation and obtain the necessary written consent from the Freeholder or the Management Company for the building before letting your property.
If your property is mortgaged or you have a loan secured on the property then you must obtain written consent from your lender prior to the tenancy commencing. Your lender may also require additional clauses in the tenancy agreement of which you must inform us and they will often charge a fee for giving their consent for the letting to take place.
As regard to mortgage payments, we recommend that these are always paid directly by you via standing order.
Every property in the UK has a yearly council tax rate that is calculated from a formula based upon the value of the property, the number of occupants and the financial status of those occupants. It is the responsibility of the tenant or tenants to pay council tax due on a property. There are exemptions and reductions available to single occupants and students upon application to the local council.
It is standard in most tenancy agreements to stipulate that it is the responsibility of the tenant to arrange and pay for utility services such as gas, electricity, water, telephone and television license.
As your agent we can arrange for the transfer of utility accounts to the tenant and between tenants if your property is let again. Meter readings will be taken at the start and end of each tenancy allowing for closing gas and electricity accounts to be drawn up. We will handle all these matters for you, but telecommunication providers will usually require instructions direct from both the landlord and tenant.
As landlord you are also responsible for all standing charges whilst the property is not subject to a tenancy agreement. i.e. when the property is vacant.
If you reside in the UK then it is your responsibility to inform the Inland Revenue of any rental income received and to pay any tax due on it. Before taking the decision to let your property, it is advisable to consult an accountant who can offer professional advice on tax matters. This will usually save you money in the long term. It is also useful to remember that that income tax on rental incomes is charged on the profit received after the deduction of allowable expenses.
If you are not residing in England and Wales during the tenancy then we, as your agents, are required to deduct basic rate tax from any rent that we collect on your behalf. You can apply to the Inland Revenue for an exemption certificate depending on your current tax situation.
Building and Structural Condition
A well-maintained property in good decorative order will help towards a smooth-running tenancy. This will also have a positive impact in the form of a potentially higher rental figure. Moreover, we have found that tenants are more inclined to treat a nicely presented property with greater respect.
As landlord you are legally responsible to keep in repair the structure and exterior of the property and keep in repair and proper working order the installations in the property for the supply of water, gas, electricity, sanitation and for space and water heating. Repairs and maintenance are at the landlord’s expense unless misuse can be established. Also, interior decorations should be in good clean condition and preferably plain, light and neutral in presentation.
Furnished or unfurnished
The majority of properties on the letting market are ‘unfurnished’. A good working definition of this term is that it will usually include carpeting or flooring, curtains / blinds and a cooker. A ‘partly furnished’ property will usually contain the usual ‘white good’ kitchen appliances such as washing machine and fridge.
We recommend that you leave only minimum furnishings and that these should be of reasonable quality. Any items to be left should be in the property during viewings. Personal possessions such as ornaments, pictures and books should definitely be removed from the premises, especially those of financial or sentimental value. Some items may be boxed, sealed and stored in the loft at the owner's risk. All cupboards and shelf space should be left clear for the tenant's own use.
Gardens should be left neat, tidy and rubbish free, with any lawns cut. Tenants are required to maintain the gardens to a reasonable standard, provided they are left the necessary tools. However, if you have very high standards for your garden or if it is particularly large then you may wish for us to arrange visits by a regular gardener.
At the commencement of the tenancy the property must be in a thoroughly clean condition and at the end of each tenancy it is the responsibility of the tenant to leave the property in a similar condition. Where they fail to do so, cleaning will be arranged at the tenant’s expense.
Information for the tenant
It is helpful to the tenant if you leave a ‘useful information’ folder at the property containing manuals and documentation for operating the central heating and hot water system, washing machine and any alarm system. It is also good to include details of when the refuse is collected.
Provision of keys
You should provide one set of keys for each tenant. Where we are managing your property we will arrange to have duplicates cut as required.
Landlord Guide to Gas Safety
This guide provides a more detailed explanation of the Gas Safety legislation and the responsibilities that it imposes on you as landlord.
The health risks of poorly fitted or maintained gas appliances and flues cannot be underestimated and failure to fulfil your duties as landlord could result in fines of up to £5000 for each offence. If a case is referred to the Crown Court then there is the possibility of receiving an unlimited fine and even a custodial sentence.
Worst of all, failure to maintain appliances correctly could result in a tragic and unnecessary loss of life.
The Gas Safety (Installation and Use) Regulations 1998
These deal specifically with the installation, maintenance and recommended use of gas appliances, flues and associated pipework in domestic and some commercial premises. The Regulations require that such items, whether fixed or portable, that are provided for the tenant must be safe to use. This includes appliances and flues serving ‘relevant premises’, such as a central heating boiler that although not installed in a property is used to heat it.
Items not covered under the Regulations’ safety check and maintenance requirements include appliances owned by the tenant, flues or chimneys that are connected solely to an appliance owned by the tenant and gas appliances used exclusively in an area of the premises designated and occupied for non-residential purposes.
The duties under the Regulations in relation to the appliances, flues and associated pipework provided for the tenant’s use apply to what is termed ‘relevant premises’. This means those that are occupied for residential purposes either under a licence, fixed term tenancy or a lease as defined by the Regulations. In practice it covers any lease for a term of less than seven years.
As landlord you are required to
• Ensure that gas fittings and flues are maintained in a safe condition at all times. All gas appliances must be serviced in accordance with manufacturers instructions and by a CORGI registered engineer.
• Safety check all gas appliances and flues in rented accommodation within 12 months of being installed and thereafter at least every 12 months by a CORGI registered gas installer.
• Ensure that an annual gas safety check is carried out and that certificate is issued to the tenant for all gas appliances, flues and associated pipework.
• Keep full records for at least 2 years of the inspections of each appliance and flue. These must include records of any defects found and of any remedial action taken.
• Give each new tenant a copy of the safety certificate issued by the engineer before the tenancy commences or to each existing tenant within 28 days of the check being carried out.
As landlord you are ultimately responsible for ensuring compliance with the requirements of the Regulations.
Where we are managing your property then we have a joint legal responsibility with you to ensure that all checks, maintenance and repairs are completed. You can nominate a contractor of your choice or leave us to select from our one of highly recommended local contractors.
If you are managing the property yourself then it is entirely your responsibility to ensure compliance with the Regulations.
If the property is sub-let then the original landlord and the person sub-letting will usually share the legal duties imposed by the Regulations. It is important in such a situation to establish and allocate these duties with the tenant’s safety as the number one priority.
Work carried out on gas appliances, flues and associated pipework in the premises must be completed by a current CORGI-registered installer. They will carry on them a CORGI Photo Identification card that shows their photograph, registration number, trading title and date when the card expires. On the reverse of the card it details the areas of gas work that the installer is qualified to carry out.
If an appliance fails its safety check then the safety record must be updated with the exact nature of the defect and what remedial action was taken. You must ensure that a CORGI-registered installer repairs the defect and that the equipment is safe before it is used again. You must never use or allow to be used any appliance that you have been told is unsafe until it is has been repaired in accordance with the requirements of the regulations.
For further information please call CORGI on 01256 372 200 or visit www.corgi-gas.com
In case of a gas emergency contact the National Grid (formerly TRANSCO) on 0800 111999 or visit www.nationalgrid.com
Copies of the Gas Safety Regulations can be obtained on-line at www.hmso.gov.uk
Landlord Guide to Safety Issues
The following requirements are the responsibility of the Landlord as owner. Where you have signed up for our full management service, they are also our responsibility as agents. Therefore, where we are managing your property we will need to ensure compliance with these requirements.
It is the responsibility of you the landlord to ensure that gas fittings and flues are maintained in a safe condition at all times. All gas appliances must be serviced in accordance with manufacturer’s instructions and by a CORGI registered engineer.
Under the Gas Safety (Installation and Use) Regulations 1998 all gas appliances and flues in rented accommodation must be checked for safety within 12 months of being installed and thereafter at least every 12 months by a CORGI registered gas installer.
You MUST therefore ensure that an annual gas safety check is carried out and that the certificate is issued to the tenant for all gas appliances, flues and associated pipework.
Full records must be kept for at least 2 years for the inspections of each appliance and flue. These must include records of any defects found and any remedial action taken.
A copy of the safety certificate issued by the engineer must be given to each new tenant before their tenancy commences or to each existing tenant within 28 days of the check being carried out.
Under the Electrical Equipment (Safety) Regulations 1994, and certain other regulations, electrical appliances and equipment provided in tenanted premises must be safe. It is therefore necessary to arrange a qualified electrician to carry out a comprehensive check to ensure that all electrical items, plugs and leads are completely safe and undamaged and to remove or replace any faulty items.
In particular, each item should be
• Well maintained, complete and in full working order.
• Supplied with a mains lead in good condition without wear, fraying or joining repairs and that it is secure at both the plug and appliance.
• Accompanied by user instructions, guidelines and warnings.
• Fitted with the correct plug of the latest approved type (BS1363) with sleeved live and neutral pins and also fitted with the correctly rated fuse.
Consumer Protection – Fire Safety
The Furniture and Furnishings (Fire) (Safety) Regulations 1988 (amended 1989 & 1993) provide that specified items supplied in the course of letting property must meet minimum fire resistance standards. The regulations apply to all upholstered furniture, beds, headboards and mattresses, sofa-beds, futons and other convertibles, nursery furniture, garden furniture suitable for use in a dwelling, scatter cushions, pillows and non-original covers for furniture. They do not apply to antique furniture or furniture made before 1950, bedcovers including duvets, loose covers for mattresses, pillowcases, curtains, carpets or sleeping bags.
Items that comply will have a suitable permanent label or swing ticket attached. Non-compliant items must be removed before the tenancy commences.
All properties built since June 1992 are required to have been fitted with mains powered smoke detector alarms from new. Although there is no legislation requiring smoke alarms to be fitted in other ordinary tenanted properties, it is generally considered that a common law 'duty of care' exists meaning that landlords and their agents could be liable should a fire cause injury or damage in a tenanted property where smoke alarms are not fitted. We therefore strongly recommend that you fit at least one alarm on each floor in the hall and landing areas. Where possible we also recommend the provision of fire extinguishers and/or fire blankets.
Specific safety regulations exist for high-risk goods including gas cooking appliances, electrical equipment, upholstered furniture and nursery equipment. The General Product (Safety) Regulations 1994 state that all goods must satisfy general safety provisions – essentially that they must be ‘reasonably safe’.
The Consumer Protection Act 1987 reiterates this point stating that such goods supplied in the course of a business must be ‘reasonably safe’ and includes goods that are both new and used.
Landlord Guide to Tax
This guide is designed to assist you in understanding your liabilities and responsibilities as landlord in relation to taxation. However, we are not accountants so we always recommend seeking professional advice in relation to all tax matters.
The income that you receive from letting property, whether furnished or unfurnished, is generally regarded as unearned income by the Inland Revenue, regardless of your employment status.
However, as we have already mentioned, you are only liable to pay income tax on the profit generated from letting, after deductions made for ‘allowable expenses’.
What are ‘allowable expenses’?
The general rule as to whether an expense is an allowable deduction from income is to ask the following two questions:
1 - Is it an expense of income?
2 - Was it incurred ‘wholly and exclusively’ for the purposes of renting the property?
The first question generally rules out any capital expenditure. However, whether this applies to renovations depends on the extent of repair in each particular case. If a property is in a condition suitable for letting when it is acquired then renovations such as redecorating will usually qualify as allowable expenses. However, if a property is acquired at a low cost and requires a great of work before it can be let then it will usually be classed as a capital expenditure and not an allowable expense that can be set against rent received. As a general rule, where there is an element of improvement then such expenditure will be treated as capital.
The second question rules out any situation where a landlord benefits personally from the expenditure. For example, decorating materials purchased and used at the landlord’s private home are not an allowable expense.
Whilst you cannot charge for your own time spent collecting rents and managing properties, payments made to others for this purpose (even family members) are allowable expenses if actually performed and recorded. This includes the cost of employing a letting agent such as ourselves.
The following types of expenditure are usually regarded as ‘allowable expenses’:
• Interest paid on loans taken out to purchase the property.
• Travel expenses incurred by inspecting the property and/or collecting rent.
• The costs of building and contents insurance.
• Maintenance expenses.
• Leasehold expenses (such as ground rent or management company charges).
• Water rates and council tax.
Special rules apply to furnished properties where, technically, the cost of providing furniture and fittings is a capital expenditure and therefore not an allowable expense. However, the Inland Revenue offers landlords two options to offset such expenses for this type of property.
The first and most popular option is permitting the landlord to deduct a 10% wear-and-tear allowance, calculated on the rent net of any council tax or rates.
Alternatively, you may deduct the full cost of replacing items on an ‘as you go’ basis as and when it is necessary.
It is important to remember that the original outlay for furniture and fittings is not allowable – only replacements for damaged or worn-out items. Also, once you have chosen one option for offsetting this expenditure then you are not allowed to change to the other whenever it suits best.
If expenses and capital allowances for any year are greater than the rental income received then you have suffered a loss on your investment for that year.
You are not allowed to set this loss against other forms of income and instead you must carry it forward to set against the profits of future years.
If you reside outside England and Wales during the tenancy then you will still remain subject to income tax on rents received.
The Non-Resident Landlord Scheme requires us as your agent to deduct basic rate tax from any rent we collect on your behalf. However, you can apply to the Inland Revenue for approval to receive your rental income without tax deductions. This is submitted on a NRL1 form that we can supply you with, which requires you to disclose your current tax situation and obligations
If this application is successful we will be able to collect your rent and pay it to you gross. Although the rent may be paid with no tax deducted it will still remain liable to tax, so if you are a non-resident landlord then you must include it in any tax return that the Inland Revenue provides you with.
Capital Gains Tax
Capital Gains Tax (CGT) is not usually payable on a private individual’s own home, but is payable on most property that is let. As landlord, your liability for CGT is on the profit made when the property is sold.
You will be exempt from paying CGT if the let property is sold within 3 years of being purchased. If this exemption does not apply, then you will pay CGT for the amount of time that the property was not your ‘principle residence’ (where you actually live).
Reducing CGT Liabililty
The capital gain generated upon sale is not simply the sum arrived at by subtracting the purchase price from the sale price. The following allowances can often reduce your liability:
• Annual exemption allowance – Every individual has an annual amount that is exempt from CGT. Where a property is in joint names then this allowance is doubled. The current annual allowance for CGT exemption is £8200.
• ‘Tapered relief’ – Applying to each complete year of ownership after the first two years, this allowance provides that the longer the property has been owned then the greater the discount on the taxable gain, subject to a maximum of ten years.
• Capital expenditure on improvements – Installing central heating or upgrading to double-glazed windows would be examples. As long as these have not attracted relief as an income expense then such expenses are deductible.
• Professional fees – Charges made by solicitors, surveyors, financial advisers and mortgage specialists to facilitate the purchase and sale are also deductible.
For further information please visit www.hmrc.gov.uk
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