My mother died last year and left me her three-bedroom semi in Nottingham, worth about £215,000 with no mortgage. I already own my home. The house needs roughly £15,000 of work to bring it up to scratch, and I think it would rent for around £850 a month. I’ve never been a landlord before, but the idea of a bit of extra income is appealing — especially with no mortgage to pay on it. My husband thinks we should just sell it and invest the money. I’m torn. What would you do? 
Sarah, Leicestershire

This is a question where the answer has changed a lot over the last two decades — because being a casual, single-property landlord has been made harder and less profitable. For serious investors who treat it as a business and are looking for long-term wealth generation the economics still work well — but in your situation it’s a lot less appealing than it used to be.

Tax is the first and biggest change to think about. Because you have inherited the property as an individual (rather than owning it as a company), all rental income will be taxed based on your marginal rate. If you’re a higher-rate taxpayer, that’s 40 per cent on every pound of profit (rising to 42 per cent next year). And while you don’t have a mortgage, if you did you would only be able to claim a partial credit against the cost — meaning your effective rate of tax would be even higher.

You will also be liable for capital gains tax (CGT) when you eventually sell. Your base cost is the probate value, so if you sell soon there’s little or no gain to worry about. But hold it for ten years and you could be looking at a significant bill — currently 24 per cent for higher-rate taxpayers for gains above your annual allowance, which itself has been reduced and now shelters just £3,000 of your gain.

A lot of landlords put properties into a limited company to benefit from expensing their full mortgage interest and paying corporation tax at a lower rate. If you were to do this, now would be the time — before it gains value and triggers CGT. But you would be unable to extract the profit from the company without paying further tax, you would have to pay stamp duty on the transfer, and there are higher annual running costs that might not be justified with a single property. It might be worthwhile if you are thinking about passing the property on to your own children or if you are planning to acquire more in the future, but otherwise likely not.

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Then there’s the compliance side. The Renters’ Rights Act comes into force at the end of this month, abolishing section 21 “no fault” evictions, and bringing in restrictions around evictions and the ability for tenants to challenge rent increase, and a whole lot more. Even before that you will need to think about an energy performance certificate, gas safety certificate, electrical safety certificate, deposit protection and complying with right to rent checks. If you use a managing agent, they will handle most of this — but you are still legally responsible, and agents typically charge 10–15 per cent of rent.

None of this is unmanageable. But it adds up — in both cost and mental energy — for what might be a few hundred pounds a month of profit.

The decision comes down to what you want from this. If inheriting this property is the start of something bigger — if you can see yourself buying more, building a portfolio and treating it as a serious part of your financial plan — then keeping it (ideally inside a company structure) makes sense.

But if your plans don’t go any further than holding it for a bit of extra income, you should think hard about whether it’s worth the hassle. You could sell, pay little or no CGT, and put £215,000 into a diversified investment portfolio with better tax treatment, earning a similar or better return, and with a lot less work.

Rob Dix and Rob Bence present The Property Podcast and are cofounders of the property education platform Property Hub. Dix’s book Seven Myths About Money (Cornerstone £18.99) is available from timesbookshop.co.uk or call 020 3176 2935. Discount for Times+ members