What is rent-to-rent and how does it work in the UK?

Full answer

Rent-to-rent (R2R) is an arrangement where you sign a lease or management agreement with a property owner, pay them a guaranteed rent, and then sub-let the property to tenants at a higher total rent. Your profit is the difference, minus your costs. Common models include letting a house as a House in Multiple Occupation (HMO) room-by-room, or running it as serviced accommodation on short-let platforms. Who it affects: aspiring property investors who lack the capital to buy. The appeal is starting with limited funds; the reality is you carry real obligations. You owe the agreed rent to the owner whether or not your sub-tenants pay or the rooms sit empty. Worked example (illustrative): you agree to pay an owner GBP 1,200 a month for a four-bedroom house. You let four rooms at GBP 550 each, receiving GBP 2,200. After the GBP 1,200 head rent plus, say, GBP 400 of bills, cleaning and management, your gross margin is around GBP 600 a month. Voids and an unexpected repair can wipe this out quickly. Key risks and rules: you generally need the freeholder's, the existing landlord's and the mortgage lender's written permission to sub-let; many residential mortgages and leases forbid it. HMOs usually need a licence and must meet fire-safety and room-size standards. Serviced lets can trigger planning and business-rates questions. Tax: your sub-letting profit is taxable income (or trading income if it amounts to a trade). The GBP 1,000 property allowance may cover very small amounts, but most R2R operators are well above it and must report via Self Assessment. Use the self-employed or income tax calculators to estimate the bill. Always take legal advice before signing and confirm all consents and licences are in place.

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