Pros and cons of selling your rental property

Are you thinking of selling your property portfolio? If so you may not be alone and this article will explore why.

Topics to be answered in this article

Why are you thinking of selling?

Owning a rental property was, for many years, seen as a way to guarantee a steady source of income. With increasing property values, tax reliefs and favourable interest rates, investing in property was an easy decision for many. However, the introduction of the Stamp Duty Land Tax surcharge, the end of mortgage interest tax relief and hefty interest rates increases has meant less financial reward for landlords. 

The cost of living crisis has meant higher repair and upkeep costs for landlords. Research by estate agents Savills found that average landlord net profits are the lowest since 2007. Although new tenancy agreements can enable landlords to increase rent to help close the gap between mortgage and upkeep costs and income profits, landlords with longer term tenants cannot simply increase the rent to do so meaning they are often left with an unprofitable investment. 

It is of no surprise, therefore, that lots of Landlords are choosing to sell and find more profitable investment opportunities. 

What is likely to change over the next few years?

The proposed changes to EPC regulations (now scrapped) could loom again in future. The plans included rental properties having a minimum efficiency rating of C from 2028. The government has, instead, decided to encourage landlords to “increase their energy efficiency where possible”

The Renters (Reform) Bill, currently in the House of Commons, proposes getting rid of the no-fault eviction. Currently, landlords are able to evict tenants upon notice without giving a reason. Understandably, there are concerns from Landlords about this proposal even though, in his first King’s Speech as monarch, King Charles said: “Landlords will benefit from reforms to provide certainty that they can regain their properties when needed.” There are already reports in the news of Landlords choosing to sell before no fault evictions are abolished. 

Is now the best time to sell a rental property?

In the Spring Budget, Jeremy Hunt announced plans to reduce the higher rate of Capital Gains Tax for gains on residential properties, bringing it down from 28% to 24% in the upcoming Spring Finance Bill 2024. This adjustment will be effective from 6 April 2024, with the lower rate remaining at 18% for gains falling within an individual’s basic rate band. This may encourage Landlord’s who are currently sitting on the fence to sell in the new financial year.

If you are considering selling we recommend that you consult with your financial advisor to help you reach the right decision for you.

Selling tenanted or vacant?

If you decide to sell you should consider whether to sell with the tenants in situ or whether to sell an empty property. The answer may well link to your financial situation and if you have a mortgage you will probably want to ensure that the mortgage is covered for as long as possible. 

Selling a tenanted property will definitely limit your market and you should discuss the pros and cons with the estate agent who will better understand the local market place.

Capital gains tax

When deciding whether to sell you should also consider the tax implications. Capital Gains Tax is likely to apply and you should liaise with an accountant at an early stage to understand your potential liability and timescale for payment to avoid any nasty surprises. The Government website also gives helpful advice which can be found here  https://www.gov.uk/tax-sell-property

How can Goughs help?

At Goughs, we have a specialist property team that can help with the sale of your investment property if you do decide to sell. Please get in touch for a free estimate.

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Author Bio

Harriet Pestille

I joined Goughs in September 2022 as a Trainee Solicitor.

Prior to Goughs, I worked as an Assistant Company Secretary for three years then completed the Graduate Diploma in Law before working as a Paralegal in both Education and Private Client whilst studying the Legal Practice Course on a part-time basis.

Having done my initial degree in History of Art, I switched to the legal sector because I enjoy providing solutions to problems and helping people in a practical way. Being a solicitor will enable me to do so in a professional capacity.

I am currently in my final seat in the Residential Property department into which I have chosen to qualify. I look forward to continuing my professional and personal development with Goughs.

In my spare time I enjoy baking for friends and family, going to the gym and exploring the local area. My friendly cat Bruce also keeps me busy.

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