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Things to think about before renting out your house..

Renting out your home is a big step to take. You’ll become a landlord and that means taking on the responsibility that comes with the role. Here are the main things you’ll need to consider before renting out your home… click image to read more

1. Income tax

Before renting out your property, you’ll need to factor in the added tax commitments you’ll have as a landlord.Your rental property will give you an income, which means you’ll have to pay income tax.

The amount you pay will depend on:

  • Which income tax band you fall into
  • Your other sources of income
  • Whether your property is owned by you or a company

If you already pay tax on other sources of income, your rental income will be added to that, and you’ll need to complete a self-assessment tax return to work out what you owe.

However, if your property is placed in a company structure, you’ll pay corporation tax on your rental profits instead and only pay additional income tax on any money you take from the company.

Before deciding whether to rent out your home, speak to an independent financial advisor about the tax implications you’ll be facing. 

2. Capital gains tax

If you sell your home and it’s your main residence, you won’t have to pay any capital gains tax (CGT).

However, as soon as your home becomes a rental property, you may be liable for CGT if you sell it in the future.

CGT is due on any ‘gain’ you make – so, the difference between what you paid for your property and what you sell it for.

As your property used to be your main home, your CGT bill may be reduced by taking into account the time you spent living there.

This is known as Private Residence Relief.

And if you haven’t made a gain beyond your personal allowance (£12,300 in 2021), you won’t have to pay any CGT.

As with income tax considerations, always seek advice from an independent financial advisor on your potential CGT liabilities.

3. Additional costs

When your home is rented out, there are a host of additional costs you’ll need to factor in, including:

  • Additional stamp duty charges if you buy another property
  • Costs for gas and electrical safety checks, fire safety assessments and installation of smoke alarms
  • Further renovation and repair costs to bring the property up to standard for tenants
  • Costs when the property is empty, including mortgage, council tax and utility bills
  • Letting agent fees
  • Ongoing maintenance costs
  • Landlord insurance
  • Replacement / repair of white goods / furnishings

4. Compliance

There are hundreds of pieces of legislation you’ll need to comply with when renting out your home, including:

  • Gas and electrical safety
  • Fire safety assessments
  • Tenancy deposit protection
  • Smoke and CO2 alarm installation
  • Legionella risk assessments
  • Right to Rent checks
  • Minimum Energy Efficiency Standards (MEES)

Staying on top of current legislation and being aware of changes coming into force are crucial aspects of being a landlord and keeping your tenants safe is vital.

The best way to ensure you remain compliant is to use a letting agent.

5. The local rental market

Before renting out your home, you should explore the local rental market where you live.

Is there demand for properties like yours and how good is the competition?

Speak to your local letting agent and ask them to look at your property.

They’ll be able to advise on its potential as a rental property and make suggestions that will make it stand out to potential tenants

NB – All comments made here are generic and we would always advise you speak to a reputable independent financial advisor for guidance on the best way forward for your circumstances specifically