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What happens when I sell my buy to let property?

If you are thinking of cashing-in your property investment and want to know: ‘What happens when I sell my buy to let property?’ then this article will help.

Investors leave the investment property sector for a wide range of reasons, and since the sector has undergone lots of reform in recent years, including tax implications, means those investors who have held a property for many years may consider taking their profits.

There will also be landlords looking to sell a buy to let property with a view to investing in another opportunity, for example, in another part of the UK offering better yields, or to expand their portfolio with other property investment opportunities.

However, landlords need to appreciate that they can be liable to various costs including:

  • Capital gains tax,
  • legal fees.
  • Estate agency fees.

And there might be a buy to let mortgage early repayment charge – especially for a fixed rate BTL mortgage.

A buy to let sale will attract capital gains tax

This is the point to highlight that a buy to let sale will attract capital gains tax on the profits earned if this amount is above the annual £12,300 tax allowance – check whether this figure is still valid when you are thinking about selling up.

This tax is levied for higher rate taxpayers at 28%, and for basic rate taxpayers at 18%.

It’s important to check beforehand what the current capital gains tax rules are – and whether the tax threshold has changed – before making a commitment to sell.

However, property investors in the UK need to be aware of a catch with capital gains tax and that’s when the profit is added to your income, which may see you being dragged into the higher rate tax band.

This may mean that if you’re looking to sell more than one buy to let property, then consider selling them gradually, say, one per year, as this means you can make better use of the allowance and lower your capital gains tax bill.

What happens when you sell an investment property

Another consideration for those who want to know what happens when they sell an investment property, is for those who have a mortgage deal because selling before the deal ends could lead to high early repayment charges.

Costs will also rise because there will be solicitor and estate agent fees to consider, but these can be offset against the capital gains tax bill.

This subject can become complicated, for example, if you previously lived in the property then you may be able to access full private residence relief to cover the years you lived there and for the last 18 months of ownership.

It will be a smart move to consult with a financial adviser and or a tax specialist when selling investment property.

Sell a buy to let property

Among the options available to those who want to sell their buy to let property is the potential of offering it to the tenant.

They may wish to buy the property and if they don’t then you need to consider how long it may take to sell.

You also need to consider that when you sell a tenanted property, that’s a home with a sitting tenant in it who has an assured shorthold tenancy, means that your target market of potential buyers will be restricted to other landlords.

They may well be attracted by the prospect of investing in a property with a sitting tenant because they will have rent coming in from the first day of ownership.

The downside is that there will be extra administrative hurdles that you’ll need to clear.

As an example, you will need to provide Gas Safety certificates, the Right to Rent records if the property is in England and the tenancy agreement. Also, most landlords take an inventory and this will need to be handed over too.

The other important issue to consider is that the protected tenancy deposit will need to be transferred into the new landlord’s name.

Selling your investment property in the UK

So, if you are selling your investment property in the UK and there are no sitting tenants, then you will simply be putting your property on the open market for sale.

This means it could achieve a better selling price but you need to ensure that your current tenants have left and you have followed the correct procedures for this to occur.

It’s also possible that you may need to spend money refurbishing the property before you can sell it.

The other important issue is that you cannot simply serve an eviction notice on your sitting tenants whenever you wish, and you’ll need to follow the tenancy agreement terms and break clauses if there are any.

With an assured shorthold tenancy, the tenant has legal protection so you may need to communicate what you want to do or even offer a financial incentive for them to move out.

It may be wise to wait until the end of a tenanted period so you can serve a Section 21 notice which is a ‘no fault eviction’. This essentially gives the tenant two months notice that they have to vacate the property.

Some landlords may have a rolling contract or have inserted a break clause in their tenancy agreement.

Sell your buy to let property

So, if you have decided to sell your buy to let property and want to know what the steps are, then this is your quick checklist:

  • Get your BTL valued by at least three estate agents
  • Decide whether your BTL property is vacant or tenanted, which will affect the price
  • Understand what your tax position is when selling investment property
  • Find an agent estate agent after careful consideration
  • Hire a conveyancing solicitor to take care of the legal issues
  • Prepare for buyers and arranging viewings.
  • Negotiate any offers and contracts.
  • Exchange contracts.

Essentially, selling a buy to let property is the same as selling any other property in the UK, you simply need to be aware of the implications of selling your investment home with a sitting tenant in it and appreciate that you will be liable for a tax bill too.

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