If you let your property to several tenants who aren't members of the same family, it may be a 'House in Multiple Occupation' (HMO).
Your property is an HMO if both of the following apply:
- at least 3 tenants live there, forming more than 1 household
- toilet, bathroom or kitchen facilities are shared
A household consists of either a single person or members of the same family who live together. It includes people who are married or living together and people in same-sex relationships.
An HMO must have a licence if it is both:
- 3 or more storeys high
- occupied by 5 or more people
A local council can also include other types of HMOs for licensing.
Find out if you need an HMO licence from your local council.
The local council has to carry out a Housing Health and Safety Rating System (HHSRS) risk assessment on your HMO within 5 years of receiving a licence application. If the inspector finds any unacceptable risks during the assessment, you must carry out work to eliminate them.
You must tell the local council if:
- you plan to make changes to an HMO
- your tenants make changes
- your tenants’ circumstances change (eg they have a child)
When you start renting out property, you must tell HM Revenue and Customs (HMRC) and you may have to pay tax. If you don't, you could be charged a penalty.
You can currently save money on tax you owe by reporting undeclared rental income to HMRC. You must be an individual landlord renting out residential property.
Property you personally own
You must report income from property rental of more than Â£2,500 a year on a Self Assessment tax return.
If it’s less than Â£2,500 a year, call the Self Assessment Helpline and ask for form P810.
HMRC Self Assessment Helpline
Telephone: 0300 200 3310
Find out about call charges
Property owned by a company
Count the rental income the same way as any other business income.
Costs you can claim to reduce tax
There are different tax rules for:
- residential properties
- furnished holiday lettings
- commercial properties
You or your company must pay tax on the profit you make from renting out the property, after deductions for ‘allowable expenses’.
Allowable expenses are things you need to spend money on in the day-to-day running of the property, like:
- letting agents’ fees
- legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- accountants’ fees
- buildings and contents insurance
- interest on property loans
- maintenance and repairs to the property (but not improvements)
- utility bills, like gas, water and electricity
- rent, ground rent, service charges
- Council Tax
- services you pay for, like cleaning or gardening
- other direct costs of letting the property, like phone calls, stationery and advertising
Allowable expenses don't include 'capital expenditure' - like buying a property or renovating it beyond repairs to wear and tear.
Furnished residential lettings
You can claim 10% of the net rent as a ‘wear and tear allowance’ for furniture and equipment you provide with a furnished residential letting. Net rent is the rent received, less any costs you pay that a tenant would usually pay (eg Council Tax).
Furnished holiday lettings
For furnished holiday homes, you may be able to claim:
- plant and machinery capital allowances on furniture, furnishings, etc in the let property, as well as on equipment used outside the property (like vans and tools)
- Capital Gains Tax reliefs - Business Asset Rollover Relief, Entrepreneurs' Relief, relief for gifts of business assets and relief for loans to traders
You can only claim these if all the following apply:
- the property is offered to let for at least 210 days a year
- it’s let for more than 105 days a year
- no single let is more than 31 days
- you charge the going rate for similar properties in the area (‘market value’)
If you own the property personally, your profits count as earnings for pension purposes.
You can claim plant and machinery capital allowances on some items if you rent out a commercial property - like a shop, garage or lock-up.
Working out your profit
You work out the net profit or loss for all your property lettings (except furnished holiday lettings) as if it’s a single business. To do this, you:
- add together all your rental income
- add together all your allowable expenses
- take the expenses away from the income
Work out the profit or loss from furnished holiday lettings separately from any other rental business to make sure you only claim these tax advantages for eligible properties.
If you make a loss on renting, you can carry it forward to a later year and offset it against future profits. You can only offset losses against future profits in the same business.
You can often sort out disputes with your tenants without going to court:
Speak to your tenants about your concerns.
If this doesn't work, write a formal letter setting out the problem.
Use a mediation service, which is usually cheaper and quicker than going to court.
As a last resort, you can take your tenants to court.
Going to court
If you take legal action, the case may go to a small claims court. Small claims cases are those worth less than Â£5,000 (or Â£1,000 if the case is about repairs to a property).
The courts provide a free mediation service for small claims cases, which can take place over the phone.
If you want to get your property back because your tenants owe you rent money, you can make a possession claim online
Free advice for disputes
In Wales, you can contact Shelter Cymru
A solicitor can also help you, but they might charge a fee.
If you have to go to court, you can get advice on the day of the hearing from the housing duty desk at the court.
The tenancy agreement should include how and when you will review the rent.
When you can increase rent
For a periodic tenancy (rolling on a week-by-week or month-by-month basis) you can't normally increase the rent more than once a year without your tenants' agreement.
For a fixed-term tenancy (running for a set period) you can only increase the rent if your tenants agree. If they don't agree, you can only increase the rent when the fixed-term ends.
General rules around rent increases
For any tenancy you must get your tenants' permission if you want to increase the rent by more than previously agreed.
The rent increase must be fair and realistic (ie in line with average local rents).
How you can increase the rent
If the tenancy agreement says how the rent can be increased, you must stick to this. Otherwise, you can:
- renew the tenancy agreement at the end of the fixed term, but with an increased rent
- agree a rent increase with your tenants and produce a written record of the agreement that you both sign
- use a 'Landlord's notice proposing a new rent' form, which increases the rent after the fixed term has ended
You must give your tenants a minimum of one month's notice (if they pay rent weekly or monthly). If they have a yearly tenancy, you must give 6 months' notice.
Rent assessment committee
If your tenants think the rent increase is unfair, they can ask a rent assessment committee to decide the rent amount.
You must keep your property in good condition, and any gas or electrical systems must meet specified safety standards.
When you can enter the property
You have a legal right to enter your property to inspect it or carry out repairs. You must give your tenants at least 24 hours’ notice, although immediate access may be possible in emergencies. Your tenants have the right to stay in the property during the repairs.
You’re normally responsible for repairs to:
- the structure of your property
- basins, sinks, baths and other sanitary fittings
- heating and hot water systems
- any damage you cause through attempting repairs
If your property is seriously damaged by a fire, flood or other similar incident, you don’t have to rebuild or renovate it. However, if you do, you can’t charge your tenants for any repairs made.
If you own a block of flats, you will usually be responsible for repairing common areas, like staircases. Councils can ask landlords to fix problems in common areas, or to repair a tenant’s flat that has been damaged by another tenant.
What happens if repairs aren’t done properly
If you refuse to carry out repairs, tenants can:
- start a claim in the small claims court for repairs under Â£5,000
- in some circumstances, carry out the repairs themselves and deduct the cost from their rent
If you don't make repairs to remove hazards, your tenants can ask the local council to inspect the property under the Housing Health and Safety Rating System and to take any action that is necessary.
If the council finds serious hazards, it must take enforcement action to make sure the hazard is removed.
If the property is temporarily unfit to live in
You can ask tenants to move out during major repairs. Before this happens, you should agree in writing:
- how long the works will last
- the tenants’ right to return
- details of any alternative accommodation
You can't repossess a property to do repairs. However, if you’re planning substantial works, or want to redevelop the property, you can apply to the courts for an order for your tenants to leave. The courts are more likely to grant this if you provide alternative accommodation.
Repairs and charging rent
If the repairs are very disruptive, your tenants may be able to claim a reduction on their rent known as a ‘rent abatement’. This will depend on how much of the property is unusable.
You’re a landlord if you rent out your property. This means you have responsibilities, including:
- keeping your rented properties safe and free from health hazards
- making sure all gas and electrical equipment you supply is safely installed and maintained
- following fire safety regulations - download ‘Housing: Fire safety’ (PDF, 1.6MB)
- providing an Energy Performance Certificate for the property
- protecting your tenant’s deposit in a government-approved scheme
Health and safety inspections
The Housing Health and Safety Rating System (HHSRS) is used by your local council to make sure that properties in its area are safe for the people who live there. This involves inspecting your property for possible hazards - for example, uneven stairs leading to increased risk of falls.
If you own a property and rent it out, the council may decide to do an HHSRS inspection because:
- your tenants have asked for an inspection
- the council has done a survey of local properties and thinks your property might be hazardous
HHSRS hazard ratings
Inspectors look at 29 health and safety areas and score each hazard they find as category 1 or 2, according to its seriousness.
You must take action to fix category 1 faults - the most serious hazards - if your council serves an enforcement notice. In certain circumstances, the council can do the works themselves and claim the costs back from you. You may also be asked to remove the less serious category 2 hazards.
You will have to pay Income Tax on your rental income, minus your day-to-day running expenses.
If you have a mortgage on the property you want to rent out, you must get permission from your mortgage lender.