estate agent giving a key of property to new owner after signed agreement - l

Selling a buy-to-let property.

05 Apr 2022 | 3 min

For many landlords, rental properties are investments. So it’s almost inevitable that the time will come to sell up, and perhaps reinvest. So how do you sell one, what tax do you have to pay, and what happens to your tenants?

How to sell a tenanted rental property

You have a couple of options.

If you're in a rush to sell, you could always go to auction. It's relatively common for rental properties to be sold at auction, and many of the buyers are other property investors. You'll need to provide a copy of the AST in the Legal Pack for potential bidders to inspect, but have the assurances that the contract of sale is binding the moment the hammer goes down – and you'll have completed the sale within 28 days.

Otherwise, you'll need to sell through an estate agent. Not all estate agents are equally experienced when it comes to selling investment properties, so speak to a few before committing to listing with one.

Tax on the proceeds of sale

Capital Gains Tax applies to investment properties, so if the value of your property has increased since you bought it, you'll have to pay tax on the profits. The rate on residential property is higher than other assets, and currently sits at 28%.

Just like with income tax, you get a tax-free allowance for each year. The allowance for capital gains tends to change year-on-year, so check in advance on the Capital Gains Tax microsite. At the time of writing, the allowance is £12,000.

What happens to your tenants?

While many owner-occupiers will expect a property to come with vacant possession, sitting tenants could make it a more attractive proposition to other landlords. Selling with sitting tenants is possible with minimum disruption for you and your tenants, so think about your target buyer before deciding what to do.

Remember, there's no way of telling how quickly you'll find a buyer, or how long it'll take to complete the sale. So if you're relying on your tenants' rent to cover the mortgage each month, evicting them to ensure vacant possession is a risky strategy.

Selling with tenants in situ means you’ll be able to keep the rent coming in, and – if the sale falls through for any reason – you won’t be left with an empty house and no rental income.

If you're within your Assured Shorthold Tenancy (AST) term

You'll most likely have set up an AST when your tenants moved in. Until the term laid out in the agreement has ended, you won't be able to give them a 'Section 21' eviction notice. So you'll be duty bound to sell the property with the tenants in situ.

At the time of writing, the sale of a property isn't one of the grounds you can give in order to complete a 'Section 8' eviction. You can currently serve a 'Section 21' eviction if your AST term has ended and you've entered into a rolling month-to-month tenancy, but it's been reported in the news recently that Section 21 evictions are to be banned, in an effort to curb 'revenge' evictions.

It remains to be seen whether Section 8 will be reformed to account for the sale of a property.

Arranging viewings

If your buyer is keen to have tenants in place and you have a good relationship with your tenants, it could pay to have an honest conversation with them

By being open from the outside – about why you're selling, for instance – your tenants are far more likely to accommodate your requests for viewings. You may choose to offer your tenants first refusal on the property, even just to show that you're acting in good faith.

That said, it's worth inserting a clause in your tenancy agreement that binds your tenant to provide access for viewings with reasonable notice. This can be especially helpful if your relationship with your tenants becomes fraught, and they're making it difficult to access the property.

Breaching the terms of a tenancy agreement is grounds for eviction, so this is an added safety net for you.

Any property used as security, including your home, may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Articles on our website are designed to be useful for our customers, and potential customers. A variety of different topics are covered, touching on legal, taxation, financial, and practical issues. However, we offer no warranty or assurance that the content is accurate in all respects, and you should not therefore act in reliance on any of the information presented here. We would always recommend that you consult with qualified professionals with specific knowledge of your circumstances before proceeding (for example: a solicitor, surveyor or accountant, as the case may be).

Lending decisions are subject to an affordability/creditworthiness assessment.

All content factually correct at the time of publishing.

Buy to Let