Could your tenant become your buyer? How a direct sale can work for both sides

Contrary to what most people think, tenant2owner is not primarily about tenants buying where they are renting; it is about tenants knowing about their options and choosing the best one. This particular route to homeownership however, also presents a perfect opportunity for a landlord wishing to sell.

Savills reported that 254,000 previously let homes were listed for sale in Great Britain in the twelve months to the end of March 2026, just under 700 former rentals a day and around 28 per cent above the level two years earlier. Almost all went to an estate agent. Very few of those landlords are likely to have begun by asking the person already living in the property whether they wanted to buy it.

What the vacant possession route can cost

If you want vacant possession you need Ground 1A: four months’ notice that cannot expire within the first twelve months of the tenancy, so the earliest you can serve is the end of month eight.

The restricted period will then apply. Under section 16M of the Housing Act 1988, inserted by the Renters’ Rights Act 2025, it begins on the day the notice is served and ends twelve months after the date stated in the notice as the earliest on which possession proceedings may begin.

Since that date must be at least four months after service, the minimum lock-out is sixteen months from the day of service, and it applies whether or not the tenancy continues. During it you must not re-let, grant a licence to occupy for money, or market for letting. Breach is an offence under section 16J, carrying civil penalties of up to £40,000, and a rent repayment order of up to twenty four months’ rent.

The period is fixed in length and anchored to the date you put in the notice, so serving later does not shorten it. Serve on 1 January with a possession date of 3 May and the restriction ends the following 2 May, whether you issue proceedings in May or in October. And a notice cannot be withdrawn. So it is important to explain this to the tenant if you decide to go down that route so that they’re not spooked into cutting all ties with you, whether renting or buying.

Hidden costs

Once a property stops being available for letting because you have decided to sell, its running costs stop being tax deductible. If it is your only let property the business ceases altogether. If you hold a portfolio the business continues, but expenditure on a property withdrawn from letting no longer meets the wholly and exclusively test, so insurance, service charge, ground rent, standing charges and mortgage interest on that property can fall out of relief, including the twenty per cent finance cost reducer.

These costs are not allowable against the gain either, because they are not capital.

Then council tax. Most councils charge the full rate on an empty property from day one. Under section 11B of the Local Government Finance Act 1992 a 100 per cent premium can apply once a dwelling has been unoccupied and substantially unfurnished for a year, and under section 11C a separate premium can apply to a furnished dwelling with no resident. Both have a 12-month exception where the property is actively marketed for sale, available once per dwelling per owner, which will cover a straightforward disposal but not a sixteen month restricted period.

Sell to your tenant and none of it arises. You won’t need possession, or the costs that come with it, if all goes according to plan. The rent runs to completion day, and the property is never empty.

The discount

The first stumbling block is that the tenant might not have a deposit, or a sufficient one.

A concessionary purchase, or vendor gifted deposit, is where you sell below open market value and the lender treats the discount as gifted equity in place of some or all of the buyer’s deposit.

This is now mainstream lending. Criteria Brain data reported in March 2026 put it at 42 of 74 lenders accepting a concessionary purchase where the seller is the landlord and the applicants are the tenants. Halifax requires a minimum 10 per cent discount; TSB pairs a 5 per cent deposit with a 5 per cent discount; Aldermore takes a minimum of 5 per cent, up to 25 per cent on landlord-to-tenant sales, with a twelve month occupation requirement. Some lenders calculate loan to value against the open market valuation, which is what makes a no-cash-deposit purchase possible. Others cap the loan at the discounted price. If they do, this will not work if the tenant does not have a deposit. Ask your tenant to find a specialist broker, and/or give them three researched options.

The discount will usually exceed what you save in transaction costs, so you should only go into this with full understanding. Take a property worth £280,000 let at £1,300 a month. A 5 per cent discount is £14,000. Against that you save an agent’s fee of around £4,000, perhaps three months of void at £3,900, council tax and standing charges on an empty property, and other miscellaneous costs, say, £10,000. On these figures, you are down roughly £4,000 before tax.

Then apply the tax, which differs by seller. At the higher CGT rate of 24 per cent for 2026/27 the concession nets down to about £10,640. At the basic rate of 18 per cent it costs £11,480, although the gain is added to your income to set the band, so most sellers of a property this size get to 24 per cent on most of it anyway. Remember, you have to report and pay within 60 days of completion.

If the property sits in a company the gain falls into the corporation tax computation. No annual exempt amount, and no 60 day return; the tax is due nine months and a day after the year end. The rate is 19 per cent up to £50,000 of profits and 25 per cent above £250,000, with marginal relief between the two. At 25 per cent, the £14,000 concession costs the company £10,500.

On those figures a 5 per cent concession is close to cost-neutral for most sellers, and buys certainty, speed and complete removal of restricted period risk. At 10 per cent it costs real money. That, however, is a commercial decision.

What your tenant is walking into

Do it properly, and don’t string your tenant along.

Separate legal representation is mandatory. You will sign an equity gift and solvency declaration, and the lender will require Insolvency Act indemnity insurance, since a sale at an undervalue by a seller who later becomes insolvent is capable of challenge.

The discount must be a genuine gift, not a loan, and cannot carry conditions. Your tenant will likely have to qualify on income like any other borrower, and if they are a first-time buyer the stamp duty position matters: the nil rate band has been £300,000 since 1 April 2025, with relief tapering between £300,000 and £500,000 and lost entirely above £500,000, so a discount bringing the price under £300,000 can remove their bill altogether.

Say at the outset that the sale depends on a mortgage offer, agree a date by which they must have one, and be clear about what happens if they cannot get one. A tenant told the truth who cannot proceed remains a tenant for as long as they can. A tenant led on for six months will probably not stay one for much longer than two months after that realisation sets in.

Where to start

Get a proper open market valuation before naming a figure, because the whole structure depends on the discount being realistic.

Good luck!

Patricia Ogunfeibo is a non-practising solicitor and non-practising Chartered Tax Adviser. She has been a landlord since 1986 and is the founder of tenant2owner, a platform built to aid smooth transitioning from renting to homeownership for renters in England.

General information, not advice on any particular transaction. Lender criteria and tax treatment change; take advice on your own facts.