Becoming a landlord may seem as simple as buying a property and renting it out, but there are many smaller things you need to consider before you decide to become a landlord. It can be a fantastic way to bring in some money, but you need to learn the ins and outs of the business to be successful.
It doesn’t matter if you’re renting a property you already own or buying a property specifically to rent it out; you must be prepared to face new types of taxes and HMRC requests.
This article will explain the main things you need to know to become a landlord, so you can enter the business feeling confident about this new venture.
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First Steps To Becoming A Landlord
The first step to becoming a landlord is securing your property. There are lots of different properties you might purchase and many ways you could utilise them (e.g. one large home or flats). Once you have your property set up and ready to go, you can consider letting.
Getting a dedicated landlord accountant to help you when you begin to let out your property to tenants can be very useful. An accountant can help with all the legal aspects of becoming a landlord and help you with things such as drawing up lease contacts and managing your receipts and expenses.
What Classes You As A Landlord?
Here in the UK, the official government-issued definition of a landlord is ‘anyone who rents out a property they own under a lease or a licence shorter than seven years’. Most leases will be renewed yearly but cannot extend past a maximum of seven years.
How Long Should A Lease Last?
You can not rent a property for more than seven years in the UK in one lease. However, most leases tend to fall between six months to a year and are regularly reviewed at the end of this period.
Short-term leases offer more flexibility for both the tenant and the landlord and allow for a review at the end of each rental period. Sometimes a landlord will choose to increase the rent if property costs are increasing, and a short-term lease will also give the tenant the freedom to decide if they renew their lease under these new terms.
What Is Landlord Tax?
Landlord taxes are extra taxes you will have to pay on the income you make from your rental property. You will have to pay extra business taxes if you own multiple rental properties or if being a landlord is your sole income business.
Some possible taxes you may have to pay to include:
- Stamp Duty
- Capital Gains Tax
- Rental Income Tax
- National Insurance
If you want to become a landlord, it’s very important to know which taxes you have to pay and when you need to pay them. HMRC can fine you for incorrectly handling your taxes, so if you’re worried about missing them, it’s recommended that you employ an accountant to remind you when each payment is due.
What Is A Landlord Contribution?
Landlord contributions are a somewhat tricky area of renting to monitor. They are a contribution a landlord makes to a tenant or towards the property, usually to get them to take a lease for the property. There are three main areas of landlord contributions:
- Contributions towards the tenant’s works.
- A rent-free period.
- A cash donation.
Cash contributions are known as ‘reverse premiums’ and are a common incentive to get somebody to take a property. Where it gets a little confusing is when it comes to things such as rent-free periods. No money is exchanged during a rent-free period, so it can be difficult to categorise this legally.
To keep landlord contributions legal, they must disclose them to HMRC, remember to pay landlord taxes as usual, and even offer the tenant a reduced rate or a rent-free period.
It’s important to ensure that you keep an excellent record of all documented contributions between yourself and the tenant. An accountant can also be very useful here, as they can organise your receipts with specialist software and pull up what you need in case HMRC raises a tax query.
Ready To Become A Landlord?
We hope this blog has helped you understand what you need to know to become a landlord. Though it may seem like a lot of work, with the right team behind you, you’ll have no trouble getting yourself set up. Becoming a landlord isn’t easy, but once you get through the intricacies of understanding tax and contributions, you’ll be ready to make your mark on the property market.