Selling buy-to-let properties: key factors for landlords to consider

Buy-to-let landlords feeling the strain

Landlords with interest-only mortgages on buy-to-let properties are among the most exposed to recent rate rises, as their monthly payments rise more sharply when interest rates increase.

In recent weeks, lenders have withdrawn hundreds of buy-to-let deals and repriced them at higher rates, meaning a landlord remortgaging may see their costs double or even triple overnight.

Due to the cost of living crisis, many renters cannot absorb additional rent increases, placing landlords in a difficult position as to how to pass on costs. With profits quickly disappearing, some landlords are now falling into the red and looking to sell their buy-to-let properties as soon as possible.

This article is part of our mortgage crisis series. 

Selling your buy-to-let property

While owning buy-to-let properties may have been an attractive investment previously, it may be that they no longer serve their purpose. You may decide it's time to sell and prioritise the capital in other areas, perhaps to fund retirement. 

Therefore, we have highlighted some of the main points you may want to consider, hoping that it makes the process easier to navigate.

A key consideration is that buy-to-let properties are subject to capital gains tax (CGT) on disposal when owned as an individual. Capital gains tax is calculated based on the difference between what you paid for the property and what you sold it for. The rate is chargeable at 28% for higher-rate taxpayers and 18% for basic-rate taxpayers. The capital you receive from selling your buy-to-let property may push basic rate taxpayers into the higher rate band.

It is important to acknowledge your tax-free capital gains allowance. Usually, most people who own a buy-to-let property have already exceeded the allowance. If you have not, you will only be required to pay tax on the amount that exceeds your allowance, reducing your tax bill.

If the property is owned through a limited company, you will not be subject to capital gains tax. However, the profits will be subject to corporation tax payable at 19%.

You should seek specialist professional advice, such as a qualified accountant or independent financial advisor (IFA), to make informed decisions based on your specific circumstances.

You may have a mortgage on your buy-to-let property. This does not mean you cannot sell the property, but the mortgage will need to be discharged upon completion of the sale. 

If you are still within your mortgage period, you may need to pay additional fees to the lender, including, but not limited to, early repayment charges. Disposing of your buy-to-let property at the end of your mortgage period is usually more favourable.

Possibly the most important factor to consider is whether you intend to sell the property with vacant possession or with tenants in situ. There is a much wider market for properties sold with vacant possession - therefore, you may be able to market the property at a higher price. 

However, you will have to serve notice on the tenant(s) in the correct form in line with the Landlord and Tenant Act 1985. This procedure can be lengthy, so you may wish to sell the property with tenants in situ. 

You will have to inform the tenants of your intention to sell the property. This can be a gainful option if you can prove that the property is already making a profit. There are often landlords looking to expand their property portfolio.

We would recommend that you keep safe all documentation relating to tenancies along with any certificates, guarantees or warranties for any works done on the property in your ownership. When the time comes to sell, you will need to produce them, and it is much more painless if they are readily available.

Contact our property solicitors

Whether you're looking to sell a single apartment or a portfolio of buy-to-let properties, our solicitors can help. Managing the sale of properties can be complex, with unique challenges and risks if not handled correctly.

We have an experienced team of solicitors and conveyancers trained in property law and a dedicated litigation team for complicated landlord and tenant matters. 

We have offices in London, Brighton, Eastbourne, Hastings, Uckfield, and Ulverston, and we work with landlords locally and nationally.