Landlord maths - unexpected costs

[Nw34567]

I’m looking at buying a flat that has a separate rental unit attached. We are cash buyers so don’t need to worry about a mortgage, but do need to be sure that the sums work out and we’ll see a return on investment! So can you help with me what unexpected costs I wouldn’t have thought of in my calculations?

The current tenant is apparently paying £1500 per month, inclusive of bills. I am not a higher rate tax payer but this income might push me over, so assume I’ll pay 40% on all of that. I’d also need to pay utility bills, and put away money for repairs etc when needed. What else have I not thought of?

I have been a landlord before, for about ten years ending about ten years ago, but it was a different set up and I’m aware things have changed in that period! Any advice gratefully received.

LL's have to renew EPC every 5 years not 10 years.

start point should be confirmation from your solicitor that the property is not subject to planning permission restrictions on who can reside in the studio and can it be let.
Potentially sounds rather like the classic "granny annex" that was given planning permission on condition it was not let and cannot be sold off separately to the house (hence no need for separately metered utilities)

you might also want a council tax specialist because if it is let as self contained there is no way it is not a residence in its own right that must have its own council tax banding - hence planning restrictions on "granny annexes" include the proviso that CT banding is not split as it remains one property - but this sounds like it isn't and it has slipped under the council radar if it has a history of being let to occupants independent of the property owner.

You should also see an accountant experienced in rental income because your understanding of your expected taxable profit is woeful. As someone already alluded to, part of the utilities you pay is for business purposes and can be claimed, but you need advice on the "reasonable" method for that apportionment given you have not lived in the property and therefore have no history of prior personal usage against which to measure combined private and business usage.

Well there is your answer. Do these two properties even have separate titles? Do they each have a council tax liability? Because if not, you’re in a world of legal and potentially financial difficulties. Bills inclusive is not a good basis for going forward in England (and arguably anywhere in the UK) given the price of gas and electricity. Water is different - much more reasonable and if it isn’t meterable you pay a flat rate which is still relatively low even given recent astronomical price rises.
Add in the tax complications. Hard no from me.