11th September 2023

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Selling a buy-to-let property

Selling a buy-to-let property is similar to selling an owner-occupied property, but there are some key differences, many of which relate to whether or not the property has a sitting tenant.

In this guide, we’ll look at how to sell buy-to-let property, including some consideration of selling a buy-to-let property with tenants in situ.

Selling a buy-to-let with tenants can be a little more complicated, but in some cases if you find the right investor looking to grow their portfolio, a paying tenant can be a useful way to add to the market value of the property itself.

Selling a tenanted buy-to-let

Let’s start by looking at the pros and cons of selling a buy-to-let with tenants. You prove that the property is a good investment, but you risk excluding buyers who were hoping to move into the house themselves.

Because of this, selling a buy-to-let property with tenants generally means your potential market is smaller, and that restriction can increase your time to sale while reducing your selling price.

It is (generally speaking) better to sell a property vacant. However, there are exceptions, and it’s all about finding the right buyer either way.

Impact of tenancy agreements when selling buy-to-let

If you’re planning to sell buy-to-let property with existing tenants in place, check the terms of the tenancy agreement you have in place, as this can determine the tenants’ rights to stay in place.

Assured shorthold tenancy

The most common kind of tenancy agreement on private rented properties. A Section 21 notice can force the tenants to leave without reason at the end of their fixed term, if they have been in the property for more than six months.

A Section 8 notice can be used to evict tenants for grounds ranging from causing a nuisance, to unpaid rental arrears. This typically requires a notice period of between two weeks and two months.

Excluded tenancy

An excluded tenancy agreement applies to lodgers with shared access to the landlord’s kitchen and bathroom. Reasonable notice for eviction is typically one payment period (e.g. one month, if your lodger pays monthly rent).

This is unlikely to apply to buy-to-let properties, as excluded tenancies typically relate to lodgers living under the same roof as their landlord.

Assured tenancy

Different from an assured shorthold tenancy, an assured tenancy (typically dating from 1989-97) confers longer-term rights on the tenant, making them more difficult to evict.

If this applies to your property, it may be best to sell with the tenant in situ. If they have been in place (and keeping up with rent payments) since the 1990s, this at least gives you a bargaining chip when selling to an investor.


Tax and stamp duty implications

Property taxes are payable on buy-to-let property, and in some cases subject to a premium. Capital gains tax will also have a significant impact on the profitability of the sale, so you should take this into account when considering offers.

Capital gains tax

Capital gains tax, or CGT, is chargeable on the increase in value of the property since you took ownership of it – effectively a tax on the net difference between what you paid for it and how much you sell it for.

This can eat away up to 28% of the increase in value. Unlike an owner-occupied property though, it’s likely that you’ve already made substantial rental yields over the years, which can help towards the overall value you derive from selling a buy-to-let property.

Buy-to-let tax relief

Landlords were able to claim buy-to-let tax relief at their taxpayer rate (20% for basic rate taxpayers, 40-45% for higher rate taxpayers) on the mortgage interest they paid on portfolio properties, but this was withdrawn in April 2017.

Since that time, this relief is no longer available – so make sure you get up-to-date information when considering the tax implications of buying and selling buy-to-let properties.

Stamp duty

One year previously in April 2016, new rules meant that property investors (i.e. anyone with more than one property in their name) had to pay three percentage points more on stamp duty land tax.

Again, make sure you are using the relevant buy-to-let stamp duty rates, and not the rates for owner-occupied properties, when working out the affordability of a purchase, or your asking price when selling a buy-to-let property.

Allowances and exemptions

The CGT you have to pay will depend on your income tax band and may range from 18-28%. It’s subject to the Annual Exempt Amount, which is an allowance specifically for CGT.

For 2023-24 the CGT Annual Exempt Amount was set at £6,000 for individuals and £3,000 for trusts, a significant cut from the £12,300 and £6,150 of the previous financial year.


Differences between selling your own property and a buy-to-let

Whether you’re selling your own property or a buy-to-let, think about how to maximise the saleability of the building and its interior.

Clean, tidy, light and bright interiors in neutral colours are always popular on the open market, and lighter colours can make interiors feel more spacious too.

If your most recent tenants have made any outlandish design decisions, it might be worth taking the time – and making the financial investment – to restore clean, neutral, light-coloured paintwork before arranging any viewings with potential buyers.

CGT on partially tenanted properties

A key difference depends on whether or not you ever occupied the property yourself. If you lived in the residence for some time, and then rented it out – with or without a buy-to-let remortgage – then CGT may only be payable on the duration of the tenancy.

For example, if the property was rented out for five of the 25 years you owned it, you should calculate CGT on 20% of the profits of the sale, subject to the other allowances and exemptions.


The condition of your buy-to-let property when selling

Finally, selling buy-to-let property may require some additional maintenance, especially if your tenants have not informed you of any damage or required repair work.

If possible, take a detailed look around the property – with or without your tenants there – and look for damage to doors and window frames, leaks and blocked gutters, and general untidiness inside and out. Take a look at this guide which covers all the key considerations of managing rented properties through transitions of both sales and tenancy. 

You can replace carpets quite cheaply and make a big difference to the asking price. Just do the minimum that’s needed to make the property appeal to investors and owner-occupiers alike, and you’ll stand the best chance of making a sale at full market value.

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