Regulations For Renting Out A Property

Regulations For Renting Out A Property
With buy to let mortgage rates at near rock bottom levels and growing numbers of financial products available means that property investment is still a popular choice for those wanting better returns than they would get, for example, from their savings account.

While becoming a landlord is not as financially attractive as it once was, there’s a 3% stamp duty surcharge to consider and the loss of mortgage interest tax relief which means returns are lower, it is still an attractive proposition for many.

It also needs to be appreciated that interest rates are predicted to rise at some point in the future which all buy to let investors will need to factor into their business plans.

Despite this, demand from tenants is still high and since house prices have stalled means there are good opportunities for those investors who buy in the right place and run their property in a professional manner.

But when it comes to the regulations for renting out a property, these have become more complicated in recent years as the government works towards professionalising the sector which, in turn, has forced out accidental landlords – those landlords who may have been unable to sell their house and have decided to rent it out – and those bad landlords who cared little for tenants and the laws.

This guide will help outline what a potential property investor needs to be aware of and how to comply with the various laws that are in place, or which are set to come into force in future.

Please be aware that all information was correct at the time of publication (March 2019). You are strongly advised to seek professional advice.

How much can I rent my house for without paying tax?

Rent Property Without Paying Income Tax

Renting out a property is a business venture, so you will be liable to various taxes depending on how much profit you make. The profit will be your rental income minus any allowable expenses.

Currently, you can include part of the mortgage interest that you may incur as an allowable expense, but this is being tapered out so it’s also a good idea to get the advice of a reputable accountant.

Also, the accountant will ensure that you pay the correct tax on any income and there is a good guide on the tax you will be liable for when renting out a property on the .Gov website.

If you own more than one property, then for tax purposes you can combine all of your rental income and expenses.

Allowable expenses are things like letting agent and accountancy fees, buildings and contents insurance and any maintenance and repairs you carry out the property (though not for any improvement work).

The actual amount of tax you pay will also depend on which tax band you are in.

So, for example, if you earn £40,000 a year from your day job and then earn £10,000 from a rental property means that you will be pushed into the 40% higher rate tax band, which has a threshold of £46,351. Earn less than this and your tax rate will be 20%.

The other issue to be aware of is if you make a profit of more than £5,965 which means you can make voluntary Class II National Insurance Contributions. This will help ensure that you receive the full state pension.

As HMRC explains, if you own the rental property outright then the first £1,000 is considered as a property allowance and will be tax-free.

If you earn more than £2,550 a year from your rental home, then you need to tell HMRC and report the income on your self-assessment tax return.

Again, an accountant will be able to explain the details and take care of the paperwork.

What checks are done for renting a property?

When it comes to property investment, there are no formal or legal checks in place before you take tenants.

However, the situation is changing, and you’ll need to check with your local authority since growing numbers are introducing landlord registration schemes and failing to register with them could lead to financial penalties.

These schemes also help tenants find out whether a potential landlord is a rogue landlord with little interest in delivering a nice, safe property.

There are, however, other rules that you will need to meet before you rent out a property.

For example, you will require a gas safety certificate, and this must be carried out by qualified Gas Safe engineer who will provide a certificate showing that the gas fuelled equipment, for instance, the boiler, complies with the law. The gas certificate needs to be issued every year.

You will also need a valid energy performance certificate for your property and the rules for these have changed recently. For all new tenancies, a rental property will need a minimum rating of ‘E’ and from 1 April 2020, all rental properties will need to meet this requirement.

This may mean having to make a substantial investment in the property to bring it up to the standard required, so it’s an issue to be wary of if you’re investing in an old property.

Also, if you are renting out your own home, then you’ll need to inform your mortgage provider that you are doing so. There may be issues and questions they want answering and this is something many accidental or new landlords overlook.

Please be aware that some mortgage providers will not allow the property to be let to tenants – while some may impose restrictions such as not accepting a tenant in receipt of benefits, for example.

Do landlords need an electrical safety certificate?

Landlord Electrical Safety Certificate

This is currently a grey area though it is a good idea for a landlord to have an electrical safety certificate in place.

Currently, a landlord must ensure that the electrical wiring in a rental property is safe when tenants move in and is maintained effectively afterwards. However, there may be a demand from a landlord’s insurer for a check to be carried out regularly.

It also makes sense for a landlord who is investing in a property and creating a business to ensure that the wiring is safe for those who are living there. If there is an issue, then the landlord may be fined for failing to maintain the wiring.

Also, any electrical equipment provided by a landlord must be safe and have the ‘CE’ marking.

If you are buying a house in multiple occupation (HMO) then you will need an electrical installation condition report (EICR) and have it carried out every five years. For peace of mind, all landlords should have a registered electrician carry out an inspection.

Renting out a property for the first time

It’s important to appreciate that when you are renting out a property for the first time that you are providing a home that is not only habitable but safe for your tenant and their family.

Many landlords may not be aware that under the Housing Act 2004, they are liable under the housing, health and safety rating system to maintain their property in good condition and the local authority can check for potential hazards.

Which brings us to a new regulation that will have far-reaching implications – the Homes (Fitness for Human Habitation) Act. This took effect in March 2019 and if you fail to provide a safe and habitable home, a tenant has the power to take you to court under the law and be paid damages.

Landlord responsibilities in the UK

Landlord Responsibilities In The UK

A landlord’s responsibilities in the UK are wide-ranging and laws are there to help protect the landlord and the tenant alike. It’s important that all safety standards are met, and these are the relevant laws that you will need to comply with:

Smoke alarms

You must have a smoke alarm installed on each floor of the rental property and they must be functioning.

Carbon monoxide detectors

If there are wood burning stoves or a coal fire, then you need to have a carbon monoxide detector in that room.

Furniture

Any furniture in the property must meet the minimum safety standards to help reduce the risk of fire and they must have the appropriate safety labels attached.

Electrical devices

If you are supplying electrical devices, for example, a fridge, then it’s a good idea to have a portable appliance testing (PAT) carried out so you are assured of being compliant.

Energy performance certificate

As explained earlier, to avoid a £4,000 fine, your rental property must have an energy performance certificate (EPC) of at least an ‘E’ because you’ll be breaking the law renting out a property without it. This rule has been in place from 1 April 2018.

Right to Rent

A controversial regulation that landlords in England must comply with is Right to Rent. Since February 2016, a landlord must check that their potential tenant has the right to rent a property and live in the UK and failing to do so could lead to an unlimited fine and the potential of five years imprisonment.

Depending on the type of accommodation you are investing in, every tenant will need to be checked and the process is now well-established and you will need copies of various documents to prove you’ve carried out these checks.

Provide information

Your tenant will need your full name and address to contact you when necessary, plus details of your letting agent if you are using one.

You must also give your tenant a copy of the ‘How to rent’ guide published by the government, which gives advice on what tenants can do before and during a tenancy.

Protecting the tenant’s deposit

While the law to protect a tenant’s deposit has been in place for several years, surveys show that a surprisingly large proportion of landlords are either unaware of the law or simply do not protect the deposit.

Essentially, an assured shorthold tenancy will need the tenant’s deposit to be protected with a government-approved deposit protection scheme. Failing to protect the deposit can lead to a fine and make it problematic ending the tenancy when the landlord wants to.

Also, the deposit will need to be returned in full when the tenancy ends unless there is a dispute about having to pay for any damage that may have been caused to the property or if the tenant has rent arrears.

Repairs

Finally, as a landlord, you will be responsible for the repairs necessary to the property’s structure and its exterior. This will include the roof, walls, chimney, drains and the guttering.

Responsibilities may also include a faulty boiler, a leaking window seal or a cracked window. As a landlord, you must keep the equipment for the supplying of gas, electricity and water in safe working order.

Fire regulations for rental properties

Landlord Fire Regulations

We’ve already mentioned in this Property Road guide that smoke alarms and carbon monoxide detectors are needed, though detectors are only required for rental homes in England.

The law states that a smoke alarm needs to be placed on every floor – even if the property just has a bathroom on that floor, there still needs to be an alarm that works.

As the landlord, you should check the alarms are working correctly on the first day of a new tenancy, after which the tenant is responsible for ensuring that the smoke alarms work.

Should they not be working, then it’s a maintenance issue and the landlord will need to put that right.

Renting out a property – the regulations

While this guide gives a good idea of the regulations for renting out a property, the laws do change and some are not relevant in Wales or Scotland. Conversely, some rental laws that are valid in those countries are not legal in England.

As with all investments, it will pay to thoroughly research the sector to ensure you avoid falling accidentally into an expensive legal trap – or you could pay a property professional to do this on your behalf.

Again, the laws covering letting agents are also changing and from June 2019 they will no longer be able to charge a tenant fees when organising a new tenancy – this cost will pass to the landlord.

FEATURED DOWNLOAD

How To Get ANY Property Below Asking Price

Subscribe to our email newsletter and we'll send you a 7-day crash course on buying property for less, plus  '3 Killer Questions To Ask The Seller' PDF guide.
DOWNLOAD NOW
Unsubscribe at any time - privacy policy.
Share this article: