If you own a rental property and find yourself in a situation where you want or need to sell it, you must fulfil certain legal and financial obligations.

Various factors like financial circumstances, property market conditions, or changes in your investment strategy may prompt the decision to sell.

However, selling a rental property is not as straightforward as selling a vacant house. It entails specific considerations that you must address; some of which we have covered below:

Providing Notice to Tenants

Your first obligation is to inform your tenants about the sale. You are required to give them notice before proceeding.

The notice period depends on the type of tenancy agreement in place.

For Assured Shorthold Tenancies (ASTs), which are the most common in the UK, a minimum of two months’ notice is typically required. This is often accomplished through a Section 21 notice.

Remember, you cannot evict tenants without proper notice. It is crucial to respect your tenants’ rights throughout the process.

Maintenance of the Tenant’s Security Deposit

As a landlord, it is your responsibility to protect the tenant’s deposit in a government-approved tenancy deposit scheme, even during the sale.

If a new landlord takes over, they will need to protect the deposit as well and inform the tenant about the change.

Existing Tenancy Agreements

The sale of the property does not automatically terminate any existing tenancy agreements.

If tenants are still living in the property at the time of sale, the new owner will assume the existing tenancy agreement and step into the shoes of the previous landlord.

Compliance with regulations

When selling a property, landlords must comply with all regulatory requirements. This includes providing potential buyers with an Energy Performance Certificate (EPC) and ensuring that all gas and electrical equipment has been inspected and certified by a registered engineer.

Additionally, the property must meet all health and safety regulations.

Notification to Mortgage Lender

If there is a mortgage on the property, you should inform your lender of your intent to sell. Some mortgages have restrictions on selling, and you may need the lender’s consent before proceeding with the sale.

Selling a rental property as a landlord involves significant responsibilities and obligations. Landlords need to have a clear understanding of their rights and duties and consider seeking advice to ensure a smooth process.

Reporting Capital Gains Tax on residential property in the UK

Capital Gains Tax (CGT) is a tax on the profit you make when selling an asset that has increased in value.

Residential properties are subject to specific rules regarding CGT and higher rates of taxation than other gains.

Landlords in the UK who sell their rental property are required to report and pay CGT on any profit made from the sale within 60 days of completion.

Here are some key points to consider when reporting CGT on the sale of your rental property:

Record keeping: It’s crucial to keep thorough records of the property’s purchase, sale, and any relevant costs incurred during the ownership period. These records will be essential for accurate reporting and calculating the CGT liability.

Calculation of capital gains: To determine the capital gains, you subtract the property’s original purchase price and allowable costs (such as legal fees, certain improvements, and acquisition costs) from the selling price. If you are a higher or additional rate taxpayer you will pay CGT at a rate of 28 per cent, while basic rate taxpayers pay this tax at a rate of 20 per cent.

Annual exemption: Each individual has an annual tax-free allowance called the Annual Exemption. For the tax year 2023/2024, this amount is £6,000 (falling to £3,000 in 2024/25). If your capital gains fall below this threshold, you may not need to pay any CGT.

Letting Relief: If you have let out a property that was once your main residence, you might also be entitled to Letting Relief. This relief can further reduce your CGT liability, up to a maximum of £7,500, but you will only be eligible if you lived in your home at the same time as your tenants.

Please note that tax rules and regulations change regularly, and it’s advisable to consult with a tax professional to obtain personalised information regarding reporting capital gains tax on residential property sales.

Ensuring compliance with your CGT obligations is an integral part of selling a rental property as a landlord in the UK.

Be sure to familiarise yourself with the rules and consult appropriate experts to ensure accurate reporting and fulfilment of your tax obligations.

Please contact us today if you require advice on selling your property as a landlord.