Can I rent out my inherited house?
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Can I rent out an inherited house?
Yes, you can. You’ll need to follow the laws of Landlords and potentially pay income tax from the rental income.
You may be considering renting out your inherited house, but wondering where to begin. What legality is involved? What are my responsibilities? What are the benefits and disadvantages? How much should I charge for rent? What taxes should I be aware of? Is there anything else I should know? This post will consider these questions, enabling you to make an informed decision. This post starts with the assumption you have already gained legal rights to the home. See our previous post, ‘A quick guide to selling an inherited property’ for details on how to go about this.
Legally owning the home means you may have taken on- or decided to take out- a mortgage. When taking on the mortgage it’s important monthly payments are met, otherwise, a repossession could occur. You might take out a mortgage to refinance or maintain the home, with buy-to-lets being the most common in terms of renting. A mortgage lender will consider how much rent you intend to charge, how big a deposit you have and if you could afford the mortgage if the home was empty for a certain period of time.
The Money Advice Service state that the rent should normally be at least a quarter higher than your monthly mortgage and that the minimum deposit is generally at least 25% of the property’s value. As there are various types of buy-to-lets, such as fixed-rate and tracker rate, talking to a mortgage broker or adviser can help you pick a mortgage suitable for your situation. It’s important to note that if the home already has a mortgage you must inform your mortgage lender about your renting intentions, otherwise you are breaking the conditions of your mortgage contract. You may need consent for lease from them too.
After you’ve sorted out the mortgage, as Money claim, you’ll need to get your property ready. This includes carrying out repairs, ensuring appliances work and redecoration where required. You can then use a lettings agent to help you advertise the home, show potential tenants around and draw up the tenancy agreement among other things. Alternatively, with the help of a solicitor, you can do this yourself. Landlord insurance can be of great benefit as it includes buildings and contents insurance (e.g. flooding, fire, theft and burst pipes), loss of rent and home emergency cover (e.g. boiler breakage). Though cost depends on the property size, location and type of tenants (e.g. student or pet owner) it is certainly a worthwhile investment.
How much should I charge for rent?
Researching similar houses in your area on websites such as Zoopla.co.uk, rightmove.co.uk and the Land Registry is a good place to start. Talking to an estate agent or local ARLA letting agent is also advisable. Online calculators can also help, such as thehouseshop.com and Accord.
What taxes should I be aware of?
As you’ll be making an income from the rent, you’ll be subject to income tax. To work this out:
- Add together all your taxable income from renting out the house.
- Check whether you can claim any tax relief and subtract from your total income.
- Discover your tax allowances, including your Personal Allowance.
- Work out the difference between the above figures.
This will give you a rough idea of how much you’ll need to pay. You can find more detailed information concerning income tax from citizens advice and GOV.UK. It is also worth speaking to an accountant. If your annual profits from renting exceed £5,965, being a landlord is (or becomes) your main job and you rent out more than one property, you may also have to pay National Insurance. Find out more information here.
What are your responsibilities as a landlord?
- Ensuring all gas and electrical equipment is installed and maintained safely.
- Fit and test smoke and carbon monoxide alarms.
- Property repairs – including heating and hot water systems.
- Providing emergency repairs for things such as burst pipes and broken boilers.
- Protecting your tenant’s deposit in a government-approved scheme.
- Insure the property, in case of flood or fire.
You’ll also need to provide your tenants with an energy performance certificate, check they have the right to rent property in England/UK and give them the, ‘How to rent’ checklist when they move in. This outlines what the tenant and landlord are responsible for and what to do if issues occur, for example.
What are the benefits and disadvantages of being a landlord?
We’ve outlined some of the pros and cons of being a landlord in our previous post, ‘I’ve inherited a house. What are my options?’ For example:
- It allows you to keep the house.
- You get tax deductions on expenses such as gardening, cleaning and replacing water pipes.
- Potentially higher tax and mortgage charges.
- Responsibility for all repairs.
A point to remember
As a landlord you’ll have continuous maintenance costs to keep up with, as even the most cautious tenants will create some wear and tear. It’s important to have some money set aside for this as legally, you may be taken to court if repairs aren’t fixed.
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