The complete guide to being a landlord

Why become a landlord?

If you're trying to decide whether to sell or rent out your property, there are a few things to consider.

Private rental prices have been growing steadily in Britain over the past few years – the Office of National Statistics (ONS) notes that rents have risen by 14.5% since 2011. Not only does this provide a nice passive income, it's also a clever way to protect your assets. Savings rates have dropped to their lowest rate in history, but in 2017, house prices across the UK rose by 5.8% on average.

Another reason is that it can be a great revenue stream. Last year there was an estimated 1.75 million private sector landlords in Britain, but demand continues to outstrip supply, and the rise of short-term renting options like Airbnb has reduced the amount of housing stock available to long-term tenants.

Being a landlord is a commitment, but it's one that you can easily manage in your spare time. Our guide will help you decide how to make the most of this opportunity.

Getting started

The first thing to think about is whether or not your property would work as a rental.

Costs of being a landlord

Although rent will be coming in, you'll have a few outgoings as a landlord too. Some are monthly, while others are one-off costs.

Rights and responsibilities

There are some legal safeguards in place to protect both you and your tenants. Understanding what they are is important.

Your responsibilities as a landlord

Your responsibilities are the things that you need to do to protect your property and to keep your tenants happy and secure.

Insurance

As the landlord, you'll be responsible for sorting out insurance to protect your property against accidental damage, such as fire and flooding. Your tenant will need to arrange their own contents insurance if they want to protect their possessions.

Appliance maintenance

If you choose to supply furniture and appliances, you'll need to keep them in good condition. This might mean replacing them or sending out a handyman to fix them. You'll also need to carry out the majority of repairs. This is probably a good thing – you don't want DIY-mad tenants potentially damaging your property. If you're using a letting agent, they'll handle this, but if you're going to be a hands-on landlord you'll need to make sure you’re easily and reliably accessible to your tenants.

Property standards

Another big responsibility is making sure the property is up to code, which you should do before the tenancy starts. This means things like fitting smoke alarms on every floor, as well as making sure there's a carbon monoxide alarm in any room that uses solid fuel (such as wood and coal). From 2018 this will also mean making sure your property meets minimum energy performance standards. There’s a lot to consider here, so visit the Getting your paperwork in place section for more details.

If you rent your property to a disabled person, you may be required to adapt it to your tenant's special needs under the 'duty to make reasonable adjustments' section of the 2010 Equality Act. See our ‘Protecting yourself (and them)’ section to find out more about this.

Deposits

Another responsibility is to look after the deposit your tenant paid by keeping it in a Tenancy Deposit Protection Scheme. If you choose to use a letting agent they’ll likely deal with this on your behalf, but if you’re going it alone, these different agencies handle this in different countries of the UK:

You'll also be in charge of ensuring that all of your paperwork (such as the EPC, Gas Safety Certificate, and tenancy agreement) is in order.

Paying rent

Landlords must inform their tenant when and how they need to pay their rent and how much it is. If the rent is paid weekly, landlord will need to give tenants a rent book or a similar document.

Increasing your rent

Before a landlord can increase their rent, the tenant must agree to it. Equally, the landlord can increase rent if:

• The tenant signs a new contract
• They have a rent review clause in their contract
• The landlord sends a section 13 notice of a rent increase (NB a section 13 notice can only be issued once a year)

The Homes (Fitness for Human Habitation) Act

As a landlord, it’s your responsibility to make sure the houses or flats you rent out are comfortable and safe for your tenants to live in. It’s not just a mark of a good landlord, it’s a legal requirement too. The Homes (Fitness for Human Habitation) Act gives tenants in England the power to take legal action against landlords who don’t take their responsibilities seriously. The courts decide whether a property is fit for human habitation and can seek exert advice if they think something’s not up to scratch.

To find out more about the Act and what you should be doing to make sure your rental property complies, read our article on the The Homes (Fitness for Human Habitation) act.

Your rights as a landlord

Although you own the property, whether outright or as the mortgage holder, you no longer have the right to simply walk in and out of it at your leisure. You need to give the tenants 24 hours’ notice before popping in, even if it’s to carry out essential repairs.

You have the right to have your rent paid. And in some circumstances and conditions, you have the right to request that the tenant leave the property. This all has to be done through the proper channels – see the ‘Ending a tenancy’ section to find how it works in your part of the UK.

If they break the contract before the term's up, you have the right to collect the rent for the term. You're also allowed to bring legal action if they don't pay.

If you're worried about handing your property over, including a 'break clause' in your tenancy agreement gives you and your tenant the right to end the contract at any time during the first six months.

Getting your paperwork in place

There are some documents you need before taking on your first tenant. Some will be passed onto the tenants themselves, and others will be for your own records.

Print off a copy of our Landlord's Checklist to help you work out if you've got everything you need. Rules and regulations differ across the United Kingdom.

Entire UK

Setting fees and rent

Choosing how much to charge your tenants should be a well-thought out process based on your costs and the local market.

Do your sums

Start by sitting down with a pen and paper, writing down all of the costs you're going to have as a landlord. For annual charges, divide them by 12. This should give you a monthly breakdown showing the bare minimum you should charge for renting the property. Of course, you'll want to make a bit of profit. The amount you can go over and above the bare minimum will depend on the local marketplace.

Do your research

Browse letting websites for similar properties in your local area and see what people are charging. Check back regularly – you'll soon know if someone's being unrealistic about what they can charge, as their property will be languishing while others are snapped up.

Some websites have calculators and tools to make things easier. For example, Home.co.uk has a list of current market rents by town and property type. Zoopla also shows an estimated monthly rental value when you use its free online valuation tool.

Speaking to other local landlords will also give you a good idea about the local market, and they'll be able to offer you pricing tips too.

Be specific to your property

When you're looking at the rental prices of other properties in the area, think about how they compare to your property. If yours is recently refurbished, has an extra bedroom, or appealing features like wooden floors, you can afford to ask for a bit extra. This goes both ways, so if your property isn't in good decorative condition, you may need to lower your expectations slightly.

Landlord support

You don't have to go it alone when you become a landlord. There's plenty of help out there if you need it, usually through letting agencies and landlord associations.

Finding the right tenant

Now your property's ready and the paperwork’s in order, it's time for the most important bit: finding someone to live there.

Choosing a great tenant is a combination of people skills and staying on the right side of the law. Here's everything you need to consider when picking someone to move in.

Your first tenant

You've run the background checks and sat down for an interview; now it's time to move your first tenant into your property.

Things to do before your tenant moves in

Run through our Landlord's Checklist to make sure everything is in order.

Legal cover and insurance

No matter how careful you are about background checks and risk assessment, things can still go wrong.

It's your responsibility to insure the property against damage like fire and flood. While you could get a regular home insurance policy, it may not cover you if you rent your property out to tenants. A landlord insurance policy is a better option as it's more tailored to your needs. Extra protection you get with an AXA landlord insurance policy includes:

• liability cover – in case a tenant becomes injured in your property and tries to sue you
• alternative accommodation cover – if your property becomes damaged, a landlord insurance policy will pay for tenants’ accommodation while repairs are carried out
• cover for up to ten properties – perfect if you decide to become a property mogul

The policy should also include standard home insurance aspects such as buildings insurance, cable and underground pipe cover and cover against subsidence and ground slip.

There are some optional extras you can add onto a landlord insurance policy, too:

• accidental damage cover – this covers you if Bordeaux’s accidentally spilt on your beige carpet
• loss of rental income – in some instances you could claim back loss of rent if your property can’t be lived in as a result of fire or other damage
• contents cover – this is a good idea if you're renting the property with furniture
• employer's liability cover – covering any cleaners or other staff who may get injured in your property
• terrorism cover

Landlord insurance policies are tax deductible too, so it won't eat into your profits.

Taxes

A lot of new changes have taken place, making tax for landlords a lot more complicated.

You can read more about these changes in our Landlord Tax Explained guide. For beginner landlords, we're going to chat about the basics.

Registering for self-assessment

You'll need to get in touch with HMRC if you're earning up to £2,500 on your property each year. If you're making £2,500 to £9,999 per year after allowable expenses (or more than £10,000 before expenses), you'll need to fill in a tax return. You need to register by the 5^th October of the tax year after you started to make money from property. Tax years run from April to April.

You can register and fill in your form online and it's a fairly pain-free experience. The deadline for submitting a tax return online is the 31^st January, but for your first tax return it's always best to do it earlier. This gives you the chance to get things sorted out if you have any issues accessing your account. Remember you're filling in the information for the previous year, so a tax return filed in January 2018 would cover the period from April 2016 to April 2017.

If you're not keen on doing it yourself, you can hire an accountant to handle it for you.

Tax deductible costs

There are some costs associated with running a property that HMRC allow you to deduct from your profits, so that you pay less tax. These are known as ‘allowable expenses’. For example, if you made £12,000 and your letting agent took £1,200, you would only pay tax on the £10,800.

Some allowable expenses for landlords are:

• Letting agent fees
• Legal fees
• Accountant fees
• Buildings and contents insurance
• Maintenance and repair costs
• Utility bills
• Cleaning services
• Direct costs such as stationery, phone calls, and advertising

Tax relief is also available when you replace domestic items (such as beds) for the sole use of your tenants. Improvements to the property, like a full bathroom refurbishment, aren't tax deductible.

Stamp duty changes

One of the biggest changes to landlord tax in recent years has been the increase in stamp duty land tax (SDLT) for second and subsequent homes. If you want to expand your property empire, it's important to know a little bit about the impact. You can read more about SDLT changes on our Business Guardian Angel blog.

Capital Gains Tax

Capital Gains Tax is a tax you pay on any profits you make when you sell a second home or buy-to-let property. The tax only applies to the gains (profit) you make when you sell something you own, and you only pay it on the profit you make above the tax-free threshold. The ‘gain’ is the difference between the price you paid for something when you bought it and the price you’re selling it for. For example, if a landlord sells a rental property, they’ll pay tax on the difference between the buying and selling price. Or in other words, they’ll pay tax on any profits they make.

Read our online guide to Capital Gains Tax for landlords here.

Ending a tenancy

All things come to an end at some point, and asking a tenant to leave your property is part and parcel of being a landlord.

How to give notice

At some point, it may become necessary to ask a tenant to leave the property. If this happens, you'll need to serve them with a notice. The type of notice will depend on why you're evicting your tenant.

England and Wales

A Section 21 notice asks tenants to leave your property after the initial fixed-term rental period ends. It can only be served to short assured tenants. You'll need to give them at least two months’ notice so that they have time to find a new property and get their affairs in order. To get proceedings started, you’ll have to fill in government form 6a.

If your tenants aren’t meeting their obligations, you can serve a Section 8 notice. This gives tenants two weeks or two months to leave the property, regardless of whether the fixed term has ended or not. To serve Section 8, you need to fill in form 3, including giving the full text of the grounds for eviction under Schedule 2 of the Housing Act 1988. For most landlords, the grounds will generally be two months of late or unpaid rent or damaged property.

Scotland

In Scotland, you need to give your tenants a Section 33 notice and a Notice to Quit. The Notice to Quit is a letter telling your tenants that you're evicting them, how much notice they're getting, that you'll get a court order if they don't go, and where they can find independent advice about the notice. For tenancies lasting six months or longer, the notice period should be 40 days. For tenancies on a month-to-month basis after the original period has ended, the notice period will be 28 days. You need to give two months’ notice for Section 33, but it's usually best to hand over both documents at the same time.

If they’ve not met their responsibilities in the tenancy agreement, you’ll need to serve a Notice to Quit and a Section 19 notice, normally called an AT6 form. This details the reason(s) for asking them to leave early and must be tied to one of the 17 grounds for possession in Schedule 5 of the Housing (Scotland) Act 1988.

Northern Ireland

If you’re in Northern Ireland, you must write a Notice to Quit letter to your tenant. Make sure you explicitly specify the date when they should leave. There are three different minimum notice periods. If they’ve been living there for less than five years, they must have 28 days’ notice; for five to ten years, it must be at least eight weeks; and for more than ten years, it must be 12 weeks.

You can’t end a fixed-term tenancy early if no one’s done anything wrong. Likewise, a protected tenant can live in the property for their whole life unless they break the contract terms.

If they have done something wrong, the same principles apply. You’ll have to write a Notice to Quit letter explaining when they need to leave by, but this time you must also include the way in which they’ve breached the tenancy.

What to do if there’s an issue in ending the tenancy

In the majority of cases, your tenants will probably leave at the end of the notice period as expected, but in some cases, it might not be so straightforward. After all, asking someone to leave their home is a sensitive issue. If this happens, it's always best to seek legal advice to make sure the situation is handled fairly and legally.

England and Wales

You need to apply to the court for a standard possession order. If you've decided not to go after any of the money that the tenants owe you, you can apply for an accelerated possession order instead. The next step is a warrant for possession. This is the worst case scenario and means getting the bailiffs involved.

Scotland

If your tenants haven't gone, you'll need to go through the courts to evict them. You'll have to tell them beforehand that you're doing this in an AT6 form, as a ‘notice of intention to raise proceedings’. You'll need to get an eviction order before you're able to force your tenants to leave.

Northern Ireland

You’ll need to satisfy the courts that you’ve followed the legal processes to resolve the situation. Once this is done, the Chancery Master (property judge) will likely serve an ‘outright possession order’, where your tenant must leave. If they still don’t go, you’ll have to apply to the Enforcement of Judgements Office for an officer to remove them – you can’t use bailiffs in Northern Ireland.

In all of these cases, if you’re communicating by email, make sure you get a response so you have proof of receipt.

So what next?

By now, you should have a firm understanding of what it takes to set yourself up as a landlord, so what are you waiting for?

Taking your first steps towards becoming a residential landlord is always exciting, but we know that the hard work is just beginning. That’s why we want to help you at every stage of your landlord journey.

For even more landlord help and information, whether you’re just starting out or you’ve been a landlord for years, head over to our Landlord Advice hub or keep reading using the links below:

• Landlord Photography Dos & Don'ts
• Landlord Tax Reflief Changes Explained

And for more information on protecting your investment, find out more about residential landlord insurance from AXA.

Useful links

Check back here for further reading on specific areas, or to find the right place to contact if you have any issues.