Renting my house - beginner questions

vertex

Hi all,

Im about to move into a new house. My current house will be empty so Im looking to rent it out.

Ive had a couple of letting agents out. For a fully managed option theyll charge about 10% of rental income.

However, we have a friend who - although cant afford to pay the market rate - is desperate to rent the house. Im prepared to take the reduced amount each month because he's a known entity.

I obviously want to do everything 'above board' and make things fair for both parties. A few questions:

1) Is it enough for me to download and print off a Tenancy Agreement? (ie is that legally binding). Ive seen this site: lawdepot where it creates an off-the-shelf agreement.

2) Do I need to keep his deposit in a 3rd party bank account?

3) How do I declare tax on the income? Im currently self employed, so do I just make a note of the yearly rental income and give that to my accountant along with my business accounts? Or does it need another 'business account' setup just for the rental income?

4) What expenses can I claim against the tax? Is it just essential maintenance? Or are there other things (decorating, any legal expenses etc...)

Thanks

hazyjo

First rule - never rent to friends or family lol! Would you be prepared to evict if he couldn't pay?


Someone will be along soon no doubt to post G_M's foolproof guide.

pramsay13

1) Yes although you might want to get it checked over.
2) Yes, one of the deposit schemes.
3) There is a section for income from property on the self assessment tax form. You don't need a separate account although might make things easier.
4) Anything that is wholly and exclusively for the purpose of renting out your property. https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income#allowable-expenses I'm not going to list them but have a look at this link.
5) You will need to register as a landlord with the local authority.
6) There are some safety checks you need to get done, e.g. landlord gas safety check.

foxy-stoat

Do you WANT to be a successful Landlord or just renting out till you sell the first property?

If yes then you really shouldn't be asking these questions so late in the day, and its not a good idea to rent to a mate for less than the market rate.

Protect the deposit in a TDS, get an EPC, get your boiler gas safety checked (if your on gas), declare income, get consent to let if you have a mortgage, I assume you had to pay extra stamp duty on the second house?

need_an_answer

The bit that concerns me is that your friend cant afford market rate,how much below are you going to charge?

What is your longterm goal for this property even once this friend tenant moves out?

How long do you envisage them being your tenant,youre doing them no favours in reduced rent because its going to prevent them from potentially affording to live anywhere else.

You are still going to have all the outgoings at standard rate so in effect what are you actually doing this for.

Read up on being a LL and the financial implications of certifications,property insurance, inventories,cost of repairs,etc before you decide to rent to anyone under market value.

I assume that the property you are looking to rent is still mortgaged in which case you will need consent to let from your mortgage provider or be swapped to a BTL mortgage

The major issue you will have is that your friend will have a tenancy agreement which will entitle them to live in a maintained property which as the LL you will be expected to maintain and cover the cost of,suddenly if the property needed a new roof or windows you would be expected to foot the bill,similarly if the shower broke or you needed a plumber its all going to come out of your pocket to fix,you cannot expect or trade off with your friend at that point.

Friends and family can be hard to rent to,for some reason occasionally they forget or pay a rent payment late so how would you deal with that?

Being a LL isn't just about charging rent and allowing someone to live in your property!

And if your friend cant afford market rate for your property that they are desperate to live in then I'm sorry but they are quite simply living beyond their means!

The other thing I find quite strange is that you are asking about "legally binding" tenancy agreements,in what sense?

To protect you both I assume, but just remember that even with a legally binding tenancy agreement it could cost you thousands to evict and move out your friend should things turn sour.

What about general wear and tear on the property,the type that you cant claim back via a deposit,carpets get walked on and wear out and if you are barely covering expenses with the rent that leaves little in the pot when in a few years time your friend moves out and you are left to replace worn items prior to selling or even re renting.

https://forums.moneysavingexpert.com/discussion/4930313/house-buying-important-threads

Out,_Vile_Jelly

So you know nothing about being a LL, and are happy to mix business with friends/family. I am confident this won't end well.

tacpot12

You don't always need to register with the local authority. Only in certain areas is this required: Scotland, Northern Ireland, Wales, and certain areas of England - check with your local council.

Have a look at this link to see what you must do with the tenant's deposit: https://www.gov.uk/deposit-protection-schemes-and-landlords

Not protecting the tenant's deposit correctly can lead to some very undesirable outcomes.

AdrianC

vertex wrote: »

Ive had a couple of letting agents out. For a fully managed option theyll charge about 10% of rental income.

However, we have a friend who - although cant afford to pay the market rate - is desperate to rent the house. Im prepared to take the reduced amount each month because he's a known entity.

OK, but who's doing the managing? If you're happy to self-manage for a friend, why not self-manage for Joe Public?

I obviously want to do everything 'above board' and make things fair for both parties. A few questions:

1) Is it enough for me to download and print off a Tenancy Agreement? (ie is that legally binding). Ive seen this site: lawdepot where it creates an off-the-shelf agreement.

Yes, it is. But read it carefully to make sure it really is a UK Assured Shorthold Tenancy.

2) Do I need to keep his deposit in a 3rd party bank account?

NO! That's illegal. You MUST keep it in one of the official deposit protection schemes. You need to do a lot of reading on your legal obligations - gas safety cert, right-to-rent paperwork checks, deposit protection - as they all involve certain paperwork that must be done (and documented) at the right time.

3) How do I declare tax on the income? Im currently self employed, so do I just make a note of the yearly rental income and give that to my accountant along with my business accounts? Or does it need another 'business account' setup just for the rental income?

Let your accountant sort it.

4) What expenses can I claim against the tax? Is it just essential maintenance? Or are there other things (decorating, any legal expenses etc...)

Trite, simplistic answer: Expenses genuinely incurred in the letting...
Mortgage interest (to a point), but not repayment of the capital. Your accountant can help you... Just note all the expenses, and let him deal with it. If he's doing the rest of your personal and business numbers, then he's unlikely to charge any extra.

csgohan4

treat the business as such, renting is not a charity unless you don't mind not making any money from it. Renting has a whole load of issues from tax to void periods, insurance, legal requirements etc.

tlc678910

Hi,
Do you know this friend well enough to know that they keep their current home as nicely as you would like them to keep yours? Do you know that they pay their current rent and that, despite not being able to pay market rate, they can afford what you will ask and their finances are secure and not in a mess.

On the other hand if this a very close friend you will be much more upset if problems come between you and destroy the friendship. Is this someone you are happy to fall out with if things turn sour?

If you trust them based on what you know of their character then consider it but don't give someone a 'chance' whose history has shown don't keep their property nicely or pay their obligations - unless you can afford to pay for both properties.

If you have a mortgage and are a higher rate tax payer tax deductions for mortgage interest are changing and you can end up with a tax bill even if you are making no money after expenses so look into this for your circumstances if relevant.

Tlc

Cakeguts

You have already made the first biggest mistake in property letting. You have assumed that the property that you bought to live in will make a good rental property. Sometimes they do often they don't. If you want to start a rental business you have to research the type of property that matches your lettings business model. If you don't do that you can expect lots of voids (periods when your property is vacant) tenants who don't pay the rent and damage to the property.



Never let to a family or friends unless you are prepared to evict them through the courts.