Selling a Rental Property Explained
Selling a rental property differs from selling a residential home as you have the tenant complexities to tie into the conveyancing process.
You can either sell the buy-to-let with the tenant to a new landlord (a sitting tenant) or as a vacant property to a residential buyer.
While selling to another landlord may sound easier, you can often get a high sale price by selling on the open market.
Both routes require a different process to be followed; we explain below about selling a rental property with a tenant in situ or without, selling in a company name, how to handle the tenant, and how much tax you'll need to pay.
Why are landlords selling their rental properties?
The increasing costs and burden on landlords are making buy-to-let investments harder to make a strong enough return compared to 10 years ago. Changes making it less appealing include:
- 3% Additional home stamp duty.
- Capital Gains Tax payable within 14 days of sale, with the potential threat of being increased.
- New legislation on EICR (Electrical Installation Condition Reports), EPC (Energy Performance Certificate), Gas safety, KYC (Know Your Customer) on tenants.
- Potential legislation on improving property energy rating to C rating by 2030 and removal of no-fault evictions.
Why is selling a rental property different?
The two ways of selling a buy-to-let property have advantages and challenges to consider.
Selling a property with tenants
- Buyer takes on the tenancy agreement with existing terms or creates a new agreement with the tenant.
- Transfer deposit to new landlord's deposit protection scheme.
- Provide in-date Energy Performance Certificate, EICR and last boiler maintenance check.
- Schedule of condition of the property when the tenant moved in.
- Rent is received up to the point of sale so no lost rental income.
Selling a property with no tenants
- Linking the sale into the notice period in the tenancy agreement.
- Serve section 21 notice on tenant to vacate with 2 months' notice.
- End of tenancy sign-out; check condition of property, return deposit.
- Lost income on rent between the tenant moving out and completion.
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How to deal with the tenant
Tenants are the number one difference when selling a rental because they are a variable outside the conveyancing process.
They're neither the seller nor the buyer but can affect both. The tenant will most likely prefer to stay where they are living with the same landlord, so handle them with care, as they could cause the sale to fall through.
Selling to a new landlord
This causes less disruption for the tenant because they don't have to move out. They will need to:
- Consent to viewings. Even new landlords will want to inspect the property. Most tenancy agreements have a clause allowing the landlord access to the property by giving reasonable notice.
- Furnished. For furnished properties, the new landlord will need an up-to-date inventory or the condition of the furniture. Damaged furniture may require replacing by the tenant or landlord.
- Right to Tenancy Legal Paperwork. You'll need to supply the Tenancy Agreement, evidence of the tenant's Right to Rent in England, Gas safety checks, Electrical Installation Condition Reports (EICR), and details of the Deposit Protection Scheme.
- Tenant notices. Supply any notices served by the tenant to the landlord.
Documents such as the right to rent, EICR, gas safety, and deposit protection scheme are all legally required by a landlord in England.
A new landlord will expect you to provide these; if you need to obtain them, you'll do so at your own cost.
Selling to a residential buyer
This causes more disruption for the tenant. They will need to:
- Consent to viewings. It takes, on average, 10 viewings to sell a house (the Advisory), so your selling agent needs to organise these around your tenant's plans. In some cases, the tenant will leave a key with the agent, but if the tenant isn't cooperative, they'll only grant access on the few occasions they allow it. Even though tenants should allow access, a good estate agent will limit the disruption to viewings booked closely together, maximising the viewings and reducing disruption.
- Tie into notice. Once your tenant is outside of their rental term in the tenancy agreement, you can serve them 2 months' notice to vacate.
- Legal Paperwork. You must supply the Gas safety checks and Electrical Installation Condition Reports (EICR). The buyer's solicitor will know it is a legal requirement for you to have these.
- Sign out and return deposit. You need to handle the sign out of the property carefully to ensure any tenant damage is made good to avoid your buyer asking you to repair it at your own cost.
What happens if the tenant doesn't vacate the property?
Tenants don't always leave even after being served a notice to vacate the property. This is why you should never exchange contracts before your tenant has vacated.
You should follow the strict process for handing notice to the tenant using a Section 21 Notice.
If the tenant fails to vacate after the notice has expired, you'll need to speak to the tenant to find out what the delay is, but also look to start eviction proceedings. The delay could put off your buyer as evictions are not always straightforward or quick.
You cannot physically force the tenant to vacate. If you're faced with a tenant who won't leave the property, we have solicitors to help with the eviction process at competitive fixed rates. Get in contact today to find out how we can help.
Check your mortgage terms
You should check your mortgage terms to ensure you can sell your property without incurring an Early Mortgage Redemption Charge. This is only payable during your mortgage product's initial preferential fixed term.
Buy-to-let property sales are on the rise in London in 2024
TwentyCi have reported that the share of properties within inner London which were rented at some point within the past 10 years reached 22% of all homes newly listed for sale in the capital in July 2024.
The percentage for England and Wales is far less at 9%, meaning London landlords are cashing in and leaving the London market.
The implications will be a shortage of tenancies and increased rents, which could be an opportunity to improve the rental yield for remaining landlords.
The upward trajectory in the number of landlord sales has been substantial over the past 5 years, going from 16% in July 2023 to 13% in July 2019 (the last year not affected by Covid-19).
How large is the rental sector in England?
According to the English Housing Survey 2022 to 2023, 8.6 million properties are being rented, which makes up 35% of Households in England. 19% are private rentals, and 16% are social rentals.
How much tax will I pay to sell my rental property in the UK?
You don't pay stamp duty or income tax on the sale or a rental property, but you do have to pay Capital Gains Tax.
| Tax Band | Income Tax Band | Capital Gains Tax Rate (chargeable on profits) |
| Basic rate income tax payer | £0 to £50,270 | 18% |
| Higher rate income tax payer | Over £50,271 | 24% (post 6th March 2024 budget) |
How to avoid paying tax on a rental property
You can reduce the amount of tax when selling a rental property if you are married. If your married partner is in a lower tax band than you, you can transfer the equity in the property to them before the sale.
You need to consider if this triggers a Stamp Duty liability if there is a mortgage; however, for most married couples, the mortgage will be small enough not to trigger a liability.
Read more - Transfer ownership of house to wife or spouse and Capital Gains Tax on property for married couples.
Selling a rental property in a company name
The tax implications differ for a company selling a buy-to-let property because it doesn't pay capital gains tax. It'll pay corporation tax instead. There are also other points to consider, including:
- Removing charge from Companies House. Your conveyancing solicitor must update the Companies House charges register to remove the charge. See more - Register a statement of satisfaction (MR04).
- Disposal of fixed asset. Your accountant will calculate the asset disposal on your balance sheet/financial accounts.
- Director Personal Guarantee. The director's personal liability should end once the mortgage has been settled. However, you should confirm this with your mortgage lender. Read more - Personal Guarantees by Directors.
Should the letting agent sell the property?
Using a letting agent to sell your property may seem easier, but they might focus only on letting and not sales.
As a result, they may have a network of landlords who could help market and promote your property. A property that is already rented out to a good tenant can be a great opportunity for a landlord who already owns properties in the area.
The best advice is to get a quote to sell your property from your existing lettings agent, plus two other local estate agents.
Ask how many residential sales they have completed in the previous month for properties like yours in the local area and then base your decision based on that information.
Summary when selling a rental property
- Ensure not to undersell to an investor instead of a residential buyer.
- Keep the tenant onside and informed of the process.
- Keep records of all your landlord documents to provide to the new buyer.
- Choose a selling estate agent that specialises in sales.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
