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How to Become a Landlord in the UK

ring of keys

Whatever your reasons for becoming a landlord, having a property investment can be a tangible and robust source of income over the long-term, delivering consistent income that can be used to achieve your personal goals.

There’s a lot to think about when you first become a landlord but it can be an incredibly rewarding process that offers flexibility, whether you’re heading into a broader portfolio or have wider goals you want to achieve.

Find the right property

The first, and arguably most important, thing to do is to plan and locate your ideal investment. You’ll want to identify an area that is set to experience long-term growth and ensure the development is well-placed and well-equipped to meet your investment strategy.

Your chosen area should directly feed into your goals. If you’re looking for returns over a longer period and the opportunity to scale a portfolio, you need a property that is delivering an above-average rental yield, which can be adapted to a number of uses including being reinvested. 

The right property should also appeal to the demographic in your strategy. If you’re targeting younger tenants, you’ll want to ensure you have the right amenities nearby such as transport, leisure and retail hotspots. The right property type is vital in achieving this – you’ll want a different property depending on if you’re targeting students or a working couple, for example.

Don’t neglect the surroundings of your property. Look for affordable locations that are experiencing regeneration and redevelopment – these will typically be signposts of further growth in the future.

Securing your finances (and crunching the numbers!)

Once you’ve established where your investment is, you’ll want to secure your cash flow and run the numbers to make sure your plan is feasible.

As you might expect, you’ll need a deposit. The typical journey for investors is to put down a deposit and take out a mortgage on the property, allowing the rental income to cover any repayments and of course, clear the mortgage. 

This is where having a positive rental yield is a huge benefit. The ideal situation is to find a property that fits your budget in an area with high-demand. You need to establish whether your rental income will cover your mortgage repayments and if possible, offer a surplus that you can either save or put towards your next investment. As a rule of thumb, your rental income should equal 125% of the mortgage repayments.

How to register as a landlord in the UK? 

Once you have your chosen property and have a strategy in place, you’ll need to ensure you perform the necessary due diligence. If you’re not the legal owner of the property, you’ll need the permission of the owner and check the lease for any clauses relating to subletting. 

If you own the property, make sure that renting it out is allowed within your mortgage and insurance commitments. If you purchased the property with a Buy-to-Let mortgage, you’ll typically be fine. If not, it’s worth checking with the relevant people. 

Similarly, local councils have different rules on letting your property and some authorities now run a landlord licensing scheme that you may need to go through. In England particularly, it’s important that you speak with your local council to see if you need to register.

In Wales, Scotland and Northern Island you can register to be a landlord online, although there is a registration fee involved.

What can landlords claim tax relief on?

Buy-to-Let landlords have been affected by a series of changes to legislation in recent years, from Stamp Duty Land Tax (SDLT) rate increases to restrictions on mortgage tax relief (MIRAS).

2020 will see one of the biggest changes to tax relief in the form of a reduction to mortgage interest payments that are deductible from rental income. By April, you won’t be able to deduct any mortgage expenses from rental income to reduce your tax bill. Instead, investors will receive a tax-credit, based on 20% of your mortgage interest payments. 

This will be less generous for higher-rate taxpayers that effectively received 40% tax relief on mortgage payments under the old system. 

While this means landlords can cut their final tax bill by 20%, it’s still going to prove slightly more expensive than the older system.

However, providing that the expense is ‘wholly and exclusively for the purposes of renting out the property’, this relief does cover:

  • Costs for maintenance and repairs
  • Costs for repairing furniture and furnishings
  • Council Tax, Gas, Electricity and Water
  • Insurance including landlord policies covering the property, contents and public liability
  • Fees for letting agents and consultations

Owning property in a company (Incorporation)

For landlords that want to work around tax changes, incorporation is always an option. The act of buying property through a limited company, incorporating your property portfolio can have a significant impact on the flexibility of your investments while also allowing landlords to claim more tax relief.

Better tax rates on profit

If you own your property in your own name, any rental income you make will be taxed as Income Tax. If you own the property as a company, you can be taxed using Corporation Tax instead which is typically much lower. 

This method also offers more flexibility, allowing you to time dividends for yourself or even accruing profit to use on the next property. 

Flexible Planning for Inheritance Tax

Holding property within a company offers much more flexibility when it comes to planning around Inheritance Tax, although always consider speaking to an expert about your individual case.

A poll by Precise Mortgages shows that 89% of brokers expect to see a rise in the number of landlords setting up landlord companies in the future as these positives become much more pronounced.

We’ve partnered with tax specialists BDO to examine the specific advantages of incorporation and how investors can benefit, which you can see below: 

Make sure your property meets legal requirements

As part of your due diligence, it’s important that you ensure the property meets both legal requirements for tenants and general Government guidelines. 

Terms you need to know

The ‘landlord world’ is fast-moving and uses a lot of different languages that can overwhelm both tenants and landlords, whether you’re new to the industry or an established investor.

Arrears: Late rent or rent that is unpaid and owed to the landlord.

Assured Shorthold Tenancy (AST): A fixed-term, widely used rental agreement where the tenant is an individual and net rent doesn’t exceed £25,000 a year.

Deposit: A sum of money held by the landlord, typically in a Government-backed scheme, that protects against damage to a property or a breach in the tenancy. 

Deposit Protection Scheme: A Government-backed scheme that protects the tenant’s deposit for the duration of the tenancy. This amount is paid back to the tenant, minus any deductions, at the end of the agreement.

Due Diligence: These are the steps taken by a landlord to ensure that all of their legal and financial responsibilities have been met.  

Energy Performance Certificate (EPC): Shows the energy efficiency and carbon emissions of a property while also giving an indication of the fuel bills. The certificate is graded from A (the best) to G (the worst). 

Eviction: Typically used to mean the removal of a tenant from the property after a possession order is served.

Houses in Multiple Occupation (HMO): A property that has more than three tenants and more than one ‘household’ – in this case a household means family members or partners.

Inventory: The contents of the rental property. 

Letting Agent: An industry partner that sources tenants and collects rent. Some letting agents will also support with the day-to-day management of the property and act as a contact point for tenants. 

‘Right to Rent’ Check: The ‘Right to Rent’ check requires all landlords and agents to check that tenants are legally allowed to be in the country and therefore rent a property. Failure to perform this check can result in imprisonment. 

What does ‘Let Agreed’ mean?

If you’re looking for a new property in the rental market, you’ll typically come across the term ‘let agreed’. There’s a significant difference between let and let agreed, namely the status of the agreement with the tenant.

Let Agreed means that in principle, an offer has been accepted by a prospective tenant to rent. However, the process has been stalled until the deal can be completed, tenant checks are completed and the keys are handed over.

While this means that an agreement is close to completion, it doesn’t mean that the bottom line has been signed. This is when the property has been let. For investors, let agreed can be a (sometimes literal) signpost of the demand in prospective areas where they’re looking to invest.

While the landlord journey may seem overwhelming, the process is relatively linear. Though everyone has different reasons for investing, it’s important that you consider all of the above as part of your due diligence. This will build a great foundation for the future and put you in good stead for scaling a portfolio in the future. 

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