Selling a Buy to Let Property: How to Sell Buy to Let

With rents rising and high demand being consistent throughout 2023, you may be confused as to why you might consider selling a buy-to-let property right now.

As Homelet reports, rents have risen by 9.9% annually in April 2023, so buy-to-let landlords are making more rental income than ever, but various market factors are leading investors to consider getting out of the buy-to-let market:

Rising House Prices

The first of these factors is actually a positive, as many investors are choosing to sell their buy-to-let properties to take advantage of how house prices have risen in recent years.

Capital growth is a big reason why people choose to invest in buy-to-let property, meaning the profit you make from selling a property after it has risen in price over time.

House prices have risen to record highs in late 2022, and continue to show signs of growth in 2023. The most recent data from the Land Registry indicates that house prices rose annually by 5.5% from February 2023.

Buy-to-let investors can sell their properties to make major profits through capital growth, making it one of the main reasons why people choose to sell. This is a key factor to why buy-to-let is a good investment in 2023.

Rising Mortgage Interest Rates

Another reason why investors are choosing to sell in 2023 is the issues stemming from rising mortgage interest rates.

Many choose to purchase their investment properties using buy-to-let mortgages, where they make repayments on the accrued interest over the term of the mortgage and only pay back the amount borrowed at the end of the term.

In March 2022, the average interest rate for a buy-to-let mortgage was 3.2%, whereas in February 2023 it was 5.91% according to Which.co.uk, a massive increase.

This was mainly because of the September mini-budget unveiled by the government, which caused the pound to drop in value, leading many to believe that the cost of borrowing would rise sharper than expected. Many lenders pulled their mortgage deals while others chose to inflate their interest rates.

Because of this, some investors are struggling to make their mortgage repayments, leaving them no alternative but to sell their buy-to-let property.

No More Tax Relief

Until September 2017, buy-to-let landlords were able to claim tax relief on their mortgage repayments, saving them a considerable amount of money.

Basic rate taxpayers could claim up to 20% as tax relief, while additional rate taxpayers could claim up to 40-45%.

With this no longer being available, many landlords chose to sell their investment properties as it hurt the financial viability of their properties.

Other Common Reasons

There are several other reasons why investors might want to sell their buy-to-let property, which we’ve listed here:

• Disruptive tenants who cause too much stress. It can be easier to sell the property than to get them out of it.
• Expensive vacancy periods where they are without rental income, leading them to lose money in the long run.
• Increased legislation has meant more time needs to be spent on administration, while landlords cannot charge admin fees. For those who use buy-to-let to supplement their day job, the added time this takes means it isn’t feasible.

As you can see, there are many reasons why you might consider selling a buy-to-let property, so lets get into how you might go about that.

You can sell a rental property while it is tenanted, but this can prove to be more complicated than you might think at first.

One of the most important things you can do while selling a tenanted property is to keep the people living in it happy. This will make them more likely to be agreeable to the sales process, and in turn, this will lead to fewer problems for you.

You can do this by communicating clearly and often with your tenants as soon as you decide to sell the property, to ensure they are kept in the loop.

When selling the property, you will need to hand over the tenancy agreement to the buyer and the tenants may have to go through a new round of background checks and sign updated contracts.

You’ll also need to provide the gas safety certificates and inventories, while transferring the protected tenancy deposits to the new landlord.

No matter what, your tenants have basic rights you have to respect. You cannot simply evict them or change the terms of their tenancy because you want to sell, so check the tenancy agreement you both signed.

In summary, it is much more work to sell a tenanted property than it is to sell a vacant one, but this might be the best option if you are looking to sell your property quickly.

You should be aware of how you will be taxed when selling a buy-to-let property, as this has major implications for the kind of profit you will be making on the sale.

The major tax you need to think about is capital gains tax, which is a tax on the profit you make from the sale of an asset that has risen in value.

While the buyer will have to pay stamp duty and you’ll need to pay income tax on any rental income you have made, capital gains tax is the main form of taxation you need to consider during the sales process.

It is only taxed on the profit you make, not the overall value. For example, if you bought your buy-to-let property for £200,000 and sold it for £220,000, you would only be taxed on the £20,000 profit, not the overall sale price.

How much you are taxed will depend on the tax bracket you fall under. If you are a higher rate or additional rate taxpayer, you’ll pay 28% tax on any residential property you are selling.

If you are a basic rate taxpayer, you’ll only pay 18% of the profit you make.

Either rate of tax you will pay is a substantial amount of the profit you will earn from selling, so you’ll need to prepare for this when getting ready to sell.

You may be able to get tax relief on your capital gains tax if you made a loss on the sale of the property, and you may be able to deduct capital expenses for any significant improvements you made to the property over the course of your ownership.

This is not likely to be the case however, so no matter what, the main problem with selling a buy-to-let property is capital gains tax as it will eat into your profits significantly.