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If you are a landlord considering selling your rental property the process can seem complex, especially when it comes to taxes and dealing with tenants. Our comprehensive guide will provide you with valuable insights to help you navigate the selling process smoothly.
Selling a rental property in the UK: Your guide to taxes, tenants, and more
6 min read
Are you considering selling your rental property in the UK? Whether you're looking to downsize, invest in something different, or simply cash out, the process can be complex. Read our guide below, which will help you navigate the selling process smoothly.
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- Selling a Rental Property in the UK: A Guide to Taxes, Tenants, and More
Evaluating your property
Before putting your property on the market, you’ll need to consider the following:
Market Research: Conduct a thorough analysis of the local property market to determine the current value of your rental. Consider factors such as recent sales, property trends, and economic conditions.
Property Assessment: Assess the property's condition, including any necessary repairs or renovations. A well-maintained property can attract higher offers and potentially command a premium price.
Deciding whether to sell with tenants in situ or with vacant possession
You can choose to sell your property with tenants in situ or serve them notice and sell with vacant possession. There are advantages and disadvantages to both, which we will explore below, to help you consider the right option for you and your circumstances.
Selling with tenants in situ
When selling a property with tenants in situ, you will still have the rental income whilst the sale goes through. Also, having tenants in place already can be a selling point to other landlords as the buyer can avoid spending time and money finding new tenants once transaction has completed.
There are some points to consider when selling with the tenants in situ:
Narrowing the market: By selling with tenants in situ, you are restricting who might be interested in your property exclusively to buy-to-let landlords, and excluding those who might want the property to live in themselves. This could mean that it takes longer to sell or sells for less.
Arranging viewings: Tenants rights will need to be considered when the property is being marketed and viewings are taking place. You should check the terms of the tenancy agreement to see if there is a clause regarding the tenant allowing viewings.
The tenant could serve notice: The tenants could decide to service notice whilst the conveyancing process is going on. This could be an issue if the buyer has put an offer in on the basis that the property is already occupied, which could cause them to pull out.
Selling with vacant possession
Selling with vacant possession means that those living in the property will have vacated by the time the sale completes. This means that you can sell your property to any potential buyer, and not just landlords.
If you have tenants in the property, but you wish to sell with vacant possession, there are a number of things you need to consider:
Notice Period: You will need to give your tenants sufficient notice to vacate before the property sale completes. The notice period to terminate the tenancy is based on the tenancy agreement, however it is typically two months.
Tenant Rights: Respect tenants' rights and adhere to legal procedures if you need to evict them.
Negotiation: Consider discussing a mutually agreeable early termination date with your tenants.
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Choosing a Selling Method
There are several ways you can sell your rental property:
Estate Agent: Compare valuations, fees and services from different local estate agents. Consider their experience in selling rental properties, marketing strategies, and local market knowledge so you can choose the right one for you.
For Sale by Owner (FSBO): Explore the advantages and challenges of selling your property yourself. This can save on agent fees but requires more time and effort.
Online Platforms: Utilise online property marketplaces to reach a wider audience. However, be prepared to handle enquiries and viewings yourself.
Preparing Your Property for Sale
Preparing your rental property for sale can be trickier than with your main residence, especially if you have tenants.
Depersonalisation: Remove personal belongings to allow potential buyers to envision themselves living in the property. It is best to work with your tenants as it is still their home, and you’ll need to provide ample warning to your tenants before any prospective buyers visit
Redecorating and staging: Consider redecorating, giving your property a lick of paint, or even professional staging to enhance the property's appeal and create a welcoming atmosphere. Again, if you have tenants in situ you will need to work with them to cause minimum disruption.
Curb Appeal: Ensure the exterior of the property is in excellent condition, including landscaping, driveway maintenance, and exterior paint.
Up-to-date documents: if you are selling with tenants in situ or to other landlords, it can be worthwhile checking all the mandatory rental documents are up to date, including the EPC, gas safety certificates and electrical safety certificates. You might also want to prepare a financial information pack, showing the income and outgoings of the property.
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The selling process for rental properties
Viewings: Prepare your property for viewings and be ready to answer potential buyers' questions.
Offers: Negotiate offers carefully and consider factors such as price, terms, and conditions.
Conveyancing: Engage a solicitor to handle the legal aspects of the sale, including contract negotiation, property searches, and transfer of ownership.
Understanding Capital Gains Tax (CGT) on rental property sales
Investment and rental properties are normally subject to Capital Gains Tax (CGT) if they are sold at a profit. Capital Gains Tax can be up to 24% of the increase of the value of your investment, so the final tax bill may impact your decision to sell as it will reduce the net amount that you are left with after the sale.
Taxable Gains: Calculate the profit made from selling the property, taking into account the purchase price, improvements, and any allowable expenses.
Exemptions and Reliefs: Explore potential exemptions or reliefs, such as Private Residence Relief, that may reduce your CGT liability.
Professional Advice: Consult with a tax advisor to ensure you're taking advantage of all available tax benefits.
In their Autumn Budget on the 30th October 2024, the government announced that the lower rate of Capital Gains Tax will rise from from 10% to 18%, and the higher rate from 20% to 24% and confirmed that CPA on residential property will remain at 18% and 24%. For more information, visit gov.uk.
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