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  • FIRST POST
    • Miles16v
    • By Miles16v 20th Apr 17, 3:33 PM
    • 197Posts
    • 46Thanks
    Miles16v
    Buy to let rather than sell to buy advice
    • #1
    • 20th Apr 17, 3:33 PM
    Buy to let rather than sell to buy advice 20th Apr 17 at 3:33 PM
    I am planning on moving house and might have the opportunity to let my current house jointly with my father, rather than sell but could do with some advice.

    My current house is worth in the region of £220k
    My equity is about £150k
    My first direct mortgage is around £70k.
    The house I’d buy would be around £320k
    My Dad wants to invest say £110k

    How does income tax on buy to let investments work? What is a claimable expense, repayments, interest etc? Do the deeds of the property need to correspond to the person claiming the income and paying the tax? For tax reasons it makes much more sense for my Dad / wife to declare the income.

    Assuming total trust between myself and my Dad, does this sound like a reasonable plan?

    My Dad gives me £110k
    I transfer my £70k mortgage to my new home
    I release £40k of equity from my current house
    I get a further mortgage of £100k

    That gives me a total mortgage of £170k against a £320k house, so decent LTV of 53%.

    I still have £110k equity in my current house
    I get a buy to let mortgage for £110k - LTV is now 50%.

    There is no stamp duty to pay on my current house and legal fees should be kept to a minimum. I can buy my new house without the burden of a chain.

    Are there any flaws in my plan? Better ways to go?


    Thanks for any help.
Page 1
    • lovinituk
    • By lovinituk 20th Apr 17, 3:36 PM
    • 5,372 Posts
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    lovinituk
    • #2
    • 20th Apr 17, 3:36 PM
    • #2
    • 20th Apr 17, 3:36 PM
    You would be liable for the additional 3% stamp duty on your new house as it would be a second owned property. So that would be £15600, instead of £6000 if you were to sell your old house and buy the new one.
    • lovinituk
    • By lovinituk 20th Apr 17, 3:41 PM
    • 5,372 Posts
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    lovinituk
    • #3
    • 20th Apr 17, 3:41 PM
    • #3
    • 20th Apr 17, 3:41 PM
    Mortgage interest as an expense on the buy to let is being phased out. By 2020 all of your BTL mortgage interest will be part of your income. You will still get a 20% tax credit to offset some of it but it may affect your tax bracket depending on your overall earnings. You need to know about Section 24.
    • Pixie5740
    • By Pixie5740 20th Apr 17, 4:05 PM
    • 10,767 Posts
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    Pixie5740
    • #4
    • 20th Apr 17, 4:05 PM
    • #4
    • 20th Apr 17, 4:05 PM
    If you want your wife and father to be the beneficial owners to reduce the income tax liability then you won't be letting to anyone...they will.

    The whole scenario is convoluted. My advice would be to sell your home, buy a new home even if that means you're in a chain, whilst your father invests his £110k in something else.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • Cakeguts
    • By Cakeguts 20th Apr 17, 4:29 PM
    • 2,667 Posts
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    Cakeguts
    • #5
    • 20th Apr 17, 4:29 PM
    • #5
    • 20th Apr 17, 4:29 PM
    My advice would be that if you want a buy to let property you buy one that is the most suitable for that job. Many people wrongly think that a house that they bought to live in will be suitable for a buy to let. It doesn't work like that. Some houses are totally unsuitable as a buy to let property. Some houses that are appealing to an owner occupier might be a tenants worst nightmare.

    If you try to let a house that isn't the kind of house that is popular with tenants it will be difficult to get anyone who wants to pay you to live there. That means that you don't get a choice of good tenant. If you don't get a choice of good tenant you run the risk of a tenant who will stop paying the rent and wreck the place. You will also get long periods where the property is vacant. If you want to buy a buy to let property you have to do extensive research into the kind of tenant in your area and what those tenants are looking for in terms of a home and where they are looking. It is no good just deciding to keep something that you used to live in.
    • Miles16v
    • By Miles16v 20th Apr 17, 8:39 PM
    • 197 Posts
    • 46 Thanks
    Miles16v
    • #6
    • 20th Apr 17, 8:39 PM
    • #6
    • 20th Apr 17, 8:39 PM
    Thanks for replies - food for thought.

    Appreciated.
    • Crashy Time
    • By Crashy Time 20th Apr 17, 10:47 PM
    • 4,525 Posts
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    Crashy Time
    • #7
    • 20th Apr 17, 10:47 PM
    • #7
    • 20th Apr 17, 10:47 PM
    http://www.housepricecrash.co.uk/forum/index.php?/topic/229834-the-btl-io-mortgage-rates-thread/
    • Crashy Time
    • By Crashy Time 20th Apr 17, 10:50 PM
    • 4,525 Posts
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    Crashy Time
    • #8
    • 20th Apr 17, 10:50 PM
    • #8
    • 20th Apr 17, 10:50 PM
    My advice would be that if you want a buy to let property you buy one that is the most suitable for that job. Many people wrongly think that a house that they bought to live in will be suitable for a buy to let. It doesn't work like that. Some houses are totally unsuitable as a buy to let property. Some houses that are appealing to an owner occupier might be a tenants worst nightmare.

    If you try to let a house that isn't the kind of house that is popular with tenants it will be difficult to get anyone who wants to pay you to live there. That means that you don't get a choice of good tenant. If you don't get a choice of good tenant you run the risk of a tenant who will stop paying the rent and wreck the place. You will also get long periods where the property is vacant. If you want to buy a buy to let property you have to do extensive research into the kind of tenant in your area and what those tenants are looking for in terms of a home and where they are looking. It is no good just deciding to keep something that you used to live in.
    Originally posted by Cakeguts

    Not sure I agree, anywhere someone can live as an owner or mortgaged can be lived in by someone renting? The key is to make the rental price attractive enough to get people interested, IMO anyway.
    • Cakeguts
    • By Cakeguts 20th Apr 17, 11:41 PM
    • 2,667 Posts
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    Cakeguts
    • #9
    • 20th Apr 17, 11:41 PM
    • #9
    • 20th Apr 17, 11:41 PM
    Not sure I agree, anywhere someone can live as an owner or mortgaged can be lived in by someone renting? The key is to make the rental price attractive enough to get people interested, IMO anyway.
    Originally posted by Crashy Time
    Which people?
    • Crashy Time
    • By Crashy Time 21st Apr 17, 12:15 AM
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    Crashy Time
    that is why you are never going to be anything in the world of property owning. Of course you can let a property if you only charge 1 penny rent per year, but that is not the point is it? The point is to make money by letting suitable property to a suitable target market at a realistic rent.
    Originally posted by eggha

    You seem to have missed the point made in the post I replied to? I would love to see some links to property that is only desirable to rent at a penny a year, yet is desirable for an owner occupier to live in, please post some. The wider point is that most BTL people are not going to make any money.
    • Crashy Time
    • By Crashy Time 21st Apr 17, 12:15 AM
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    Crashy Time
    Which people?
    Originally posted by Cakeguts

    Sensible money saving people.
    • Crashy Time
    • By Crashy Time 21st Apr 17, 10:01 AM
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    Crashy Time
    your implication in "making the rental price attractive" is that it should be lowered - that is after all the mantra you use in every post you make and therefore logically you think all prices should drop to 1p

    The wider point is that buy to let has and will remain a juggling act between balancing revenue income and capital growth. Certain types of properties suit certain markets and there is no utopian property where both revenue and capital prospects are in balance. I agree that many amateurs are not going to make money, but that does not mean most landlords are amateurs.
    Originally posted by eggha

    Well I don`t think many renters follow the logic of your first paragraph, yes most people will take something free if they can get it, but for most of the time people are just looking for value?
    My other point was that if an owner occupier has managed to live and commute to work etc. in a property, someone else renting it could do the same, and therefore the property would be desirable to them, the boxes that a property needs to tick to be rentable are quite general IMO (you may say I know nothing about selecting BTL?) I wasn`t talking about a cottage in the middle of nowhere.
    • tlc678910
    • By tlc678910 22nd Apr 17, 10:00 AM
    • 466 Posts
    • 855 Thanks
    tlc678910
    Hi,
    I just wanted to ask you to think about some basic assumptions in your plan. I hope my thoughts add some new questions for you to consider.

    You mention your dad wants to "invest" 110k. Does he need security for this money, does he need to be able to get it back in any medium timescale. Does he need a return on it? Alternatively is he happy to leave it with you, no return on it, perhaps altering his will?

    Where will your dad's money be used. You plan to leave 110k equity in your current place and your dad is investing 110k. Will all the profit (if any occurs) be his? Could your dad buy your property on a buy to let himself if it is a good investment?

    If your buy to let mortgage interest on 110k was £400 a month and your rent charged £800 (leaving aside the reduced ability to deduct mortgage interest for higher rate tax payers) your income would be £400 x 12 =£4,800 (before tax). Although you would hope to be in profit this would not be guaranteed after landlord insurance, gas checks, repairs and maintenance, voids and possible non paying tenants. If you make a loss will you be asking dad for more money or does he actually need an investment that promises a return free of risks.

    If the above numbers are at all realistic for you you can see it will take many years to get your extra stamp duty back as profit.

    Unless your dad is sure he does not need his investment back in all circumstances it needs to be legally protected or else he could lose it if you were to die or divorce.

    If you do fancy a buy to let property why not sell your home in the usual way but max out on the mortgage you take on the new property (within what you can afford) so you can keep money back. Then when that is done and dusted you and your dad could go 50/50 or 80/20 or whatever on a cheaper buy to let property where the second stamp duty is less of a burden (as cheaper property) and what you can both afford is properly considered rather than trying to squeeze your finances to fit the circumstances you would like.

    Tlc
    • Crashy Time
    • By Crashy Time 23rd Apr 17, 3:55 PM
    • 4,525 Posts
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    Crashy Time
    http://biz.newsbelow.com/buy-to-let-slump-puts-first-time-buyers-in-the-drivers-seat-44302/
    • Thrugelmir
    • By Thrugelmir 23rd Apr 17, 4:05 PM
    • 54,830 Posts
    • 47,683 Thanks
    Thrugelmir
    The wider point is that most BTL people are not going to make any money.
    Originally posted by Crashy Time
    That's a broad generalisation. Doesn't mean that the Op won't. Seeking views and opinion is sure way of improving the odds of being successful.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • mysterymurdoch
    • By mysterymurdoch 23rd Apr 17, 4:09 PM
    • 136 Posts
    • 104 Thanks
    mysterymurdoch
    The wider point is that most BTL people are not going to make any money.
    Originally posted by Crashy Time
    So who are people living like students going to rent from?
    • Crashy Time
    • By Crashy Time 23rd Apr 17, 4:17 PM
    • 4,525 Posts
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    Crashy Time
    So who are people living like students going to rent from?
    Originally posted by mysterymurdoch

    People living with large debts tend to be either students or mortgage borrowers, but if you mean who are renters going to rent cheaply from, then ask yourself who they rented from before the BTL mania got started.
    • mysterymurdoch
    • By mysterymurdoch 23rd Apr 17, 4:18 PM
    • 136 Posts
    • 104 Thanks
    mysterymurdoch
    Can't you answer a question? I've not been here long but already noticed that. I don't know who people rent from, I've not done it for decades.
    • Crashy Time
    • By Crashy Time 23rd Apr 17, 4:24 PM
    • 4,525 Posts
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    Crashy Time
    Can't you answer a question? I've not been here long but already noticed that. I don't know who people rent from, I've not done it for decades.
    Originally posted by mysterymurdoch

    How many BTL`s do you have?
    • Crashy Time
    • By Crashy Time 23rd Apr 17, 10:12 PM
    • 4,525 Posts
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    Crashy Time
    Questions questions.....
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