Painless ways to let it out

Frances Gleeson explains how to avoid the rental pitfalls

EVERY YEAR thousands of people inherit properties they do not need and usually sell as soon as they can. The depressed property market means many owners feel they are losing money. Daunted by the potential headaches, few ever think of letting the property instead. However, a bit of planning can avoid most problems and provide you with safety devices in the event of others.

One of the biggest fears is that you will never get the property back. The tenancies introduced by the Housing Act 1988 make it much simpler to end a lease. There are two types of tenancy: assured and assured short- hold. An assured tenancy can be for any length of time, but the landlord will need to state a "ground" for ending the tenancy. The Act sets out a list of grounds that cover a variety of situations - for example, if the property is the landlord's residence, rent arrears or damage.

Assured short-holds have proved to be popular tenancies from the landlord's point of view. The lease must be a minimum of six months, but once it has run its course, the landlord only needs to serve a specially worded notice to end the tenancy. Many landlords create an assured short-hold tenancy for the minimum six months and then allow the lease to continue on a monthly basis.

It is important that the formalities for creating the tenancy are observed. If a landlord fails to follow the correct procedures for creating an assured short-hold, the tenancy will be an assured tenancy instead.

The lease can specify what the tenant must and must not do. If the tenant does not comply it may be possible to end the lease, depending on the seriousness of the breach. Specifying that the rent is paid by standing order will help to ensure that payments are made on time. It is important that you choose your tenants very carefully and take up references from previous landlords, the current employer and a bank.

It has been much easier to charge a good market rent for property since the Housing Act 1988. The Act does provide for some rent review if the tenant seeks it, but an acceptable rent is simply one that is comparable with those levied on other, similar types of property let on a similar basis. To get an idea, open the "rented accommodation" section of the newspaper local to your property.

Most properties are now let fully furnished. It is usual for the landlord to repair or replace any items provided as part of the property, except those that have been damaged by the tenant's fault or neglect.

The property and contents must also be insured. If you already have insurance, you must inform the insurance company that the property is to be let. Because of increased risk, the premiums will usually be higher.

If the property is mortgaged, you will need to gain your mortgagor's consent. In return, you might have to pay a higher rate of interest on your mortgage repayments.

In addition, you will need to maintain the property, although this would be necessary even if the property were not let. It is in your interest that the property is not devalued by falling into a state of disrepair.

The tenant is responsible for paying his or her own council tax. Some properties are let with other expenses included in the rent. In other cases, all supplies should be put into the tenant's name. It is increasingly common for the tenant to pay the water rates.

An unquantifiable expense is the time and effort involved in overseeing the let property. You, or someone appointed by you, will need to be on standby for emergency repairs. The property must be regularly inspected for damage. It may make sense to hand over the entire job to a letting agent, although this will increase your costs.

An agent usually charges an initial sum for finding a tenant, and then levies a percentage of the rent to cover his costs. The percentage will depend on the number of services offered by the agent and is typically 10 to 15 per cent of the annual rent.

Rent is liable to income tax, but interest on a loan is allowed for loans used to buy or improve a rented property. Repairs and maintenance costs are allowable against tax, as are management costs, letting agents' and solicitors' fees, advertising expenses and insurance premiums. Improvements to the property are not allowable, nor is the cost of furnishing it. But furnishings can be devalued by wear and tear, and an allowance may be claimed for mending and replacing.

If you are letting a room in your own home, there is extra tax relief available under the rent-a-room scheme. The first £3,250 rent received in the tax year is not subject to tax. The allowance can be transferred or divided between a married couple for maximum use.

q Frances Gleeson, as Frances Way, is the author of `Letting Residential Property', published by Kogan Page at £8.99.

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