Understand the tax and mortgage implications involved when selling a buy-to-let property.



Selling a buy-to-let property with tenants

Selling to an investor can be quicker than putting the property on the open market, as buy-to-let purchases tend to be conducted by more experienced buyers, involve fewer chains and be less emotion-based. The downside, however, is that you’ll have to deal with additional admin.

For example, you’ll need to provide the tenancy agreement to the new landlord, as well as Right to Rent records, gas safety certificates and inventories. You’ll also need to arrange to have your protected tenancy deposits transferred into the new landlord’s name.

The process isn’t hassle-free for tenants, either – they may have to undergo new referencing checks and sign updated contracts with the new landlord once the sale has completed – although it’s certainly simpler than eviction.

Selling a vacant buy-to-let property

If you want to evict your tenants before selling the property, you’ll need to adhere to the break clauses and contract terms set out in the tenancy agreement – you can’t simply serve notice whenever you wish.

If you’re determined to sell the property during the contracted period, you’ll have to come to an agreement yourself with the tenants, perhaps by providing financial compensation in return for them agreeing to move out early. Legally, the tenants hold the cards in this situation.

If you’re coming to the end of a tenancy period, have a specified break clause or your tenants are on a ‘rolling’ contract, you can serve a no-fault eviction using a Section 21 notice. This will give them two months’ notice before they have to vacate the property.

Remember to factor in some decorating time if you want to spruce up the property before putting it on the market, but if you have a buy-to-let mortgage, bear in mind the loss of rental income during this period.

Capital gains tax when selling a buy-to-let property

Buy-to-let properties are subject to capital gains tax (CGT).

This is charged at a rate of 28% (for higher-rate taxpayers) or 18% (basic-rate taxpayers) on any growth in value that the property has enjoyed. If you’re a basic rate taxpayer, bear in mind that the gain will be added to your income, so this could push you into to higher-rate band.

Everyone has a tax-free capital gains allowance of £12,300 per year in 2021-22, so you’ll only need to pay CGT on profits above this threshold.

It’s also possible to offset some costs, such as what you paid out for stamp duty and conveyancing when you bought the property and any charges associated with selling it (including estate agent fees). You should also be able to offset any capital improvements you’ve made to the property against your CGT bill.

You’re not allowed to deduct outgoings on the upkeep of the property or mortgage interest.

Selling a buy-to-let property: mortgage implications

When preparing your exit strategy, it’s important to consider the mortgage implications of selling your buy-to-let property.

This is particularly important if you’ve taken out a fixed-rate mortgage, where your repayments are set for a specific number of years (usually two or five, though 10-year deals are becoming more common in the buy-to-let sector).

Longer-term fixed-rate deals often come with hefty early repayment charges. For example, on a five-year fix, the repayment charge might be as much as 5% in the first year, before dropping to 4%, 3%, 2% and 1% each year until the end of the introductory period.

Not all products have such high early repayment charges, so check the specifics of your mortgage before deciding when to sell.