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  • FIRST POST
    • wilwil_uk
    • By wilwil_uk 8th Feb 18, 3:26 PM
    • 23Posts
    • 0Thanks
    wilwil_uk
    investment property advices needed
    • #1
    • 8th Feb 18, 3:26 PM
    investment property advices needed 8th Feb 18 at 3:26 PM
    hi everyone, would like some advices or ideas of what a brilliant idea I came up with last night in bed when I couldn't fall asleep.

    firstly im a self employed contractor earning just over the higher tax rate threshold, I used to live down south in and around London but couldn't stand the high rent and hopelessness of buying any decent property so I moved to manchester and bought a 3 bed semi outright which only worth around 125k. im single 38. no personal loan, credit card cleared every month, no dependent, only car finance which ends end of this year, so pretty much debt free.

    my work involves lot of traveling if I want higher rate of pay and a 3 bed is not necessary for me to be honest, and I do miss the weather of the south. im happy to just rent a studio or moving back to a shared house if necessary.

    so the "great idea" I came up with last night was, why not sell my house, and use the money to get a block of flats near some hospitals or universities under a limited company so rental income won't be added to my already higher rate of tax.

    my questions are how likely will I be able to get a mortgage (buy to let /investment loan), and what other things I need to consider?

    im a total investment novice, im so frustrated by myself wasting all my money on cars and women over the years and now im worrying about my retirement arrangement, any constructive advice or idea is mostly welcome. thanks very much
Page 1
    • ManofLeisure
    • By ManofLeisure 8th Feb 18, 6:54 PM
    • 435 Posts
    • 946 Thanks
    ManofLeisure
    • #2
    • 8th Feb 18, 6:54 PM
    • #2
    • 8th Feb 18, 6:54 PM
    hi everyone, would like some advices or ideas of what a brilliant idea I came up with last night in bed when I couldn't fall asleep.

    firstly im a self employed contractor earning just over the higher tax rate threshold, I used to live down south in and around London but couldn't stand the high rent and hopelessness of buying any decent property so I moved to manchester and bought a 3 bed semi outright which only worth around 125k. im single 38. no personal loan, credit card cleared every month, no dependent, only car finance which ends end of this year, so pretty much debt free.

    my work involves lot of traveling if I want higher rate of pay and a 3 bed is not necessary for me to be honest, and I do miss the weather of the south. im happy to just rent a studio or moving back to a shared house if necessary.

    so the "great idea" I came up with last night was, why not sell my house, and use the money to get a block of flats near some hospitals or universities under a limited company so rental income won't be added to my already higher rate of tax.

    my questions are how likely will I be able to get a mortgage (buy to let /investment loan), and what other things I need to consider?
    Originally posted by wilwil_uk
    Are you having us on . If not I would investigate how much money you will require to actually buy your 'block of flats' - probably 'a lot' more than you have envisaged .
    • grey gym sock
    • By grey gym sock 9th Feb 18, 1:27 AM
    • 4,182 Posts
    • 3,687 Thanks
    grey gym sock
    • #3
    • 9th Feb 18, 1:27 AM
    • #3
    • 9th Feb 18, 1:27 AM
    well, you have about 3 different ideas here ...

    1) you want to invest for the longer term, instead of spending all your income (or owning a large property which you neither make full use of, nor let).

    good idea. you're on the right website for this . etc.

    though i wonder whether a houseshare would really suit you at age 38 ...?!

    2) specifically, you have the idea of buying a block of flats near a university or a hospital.

    not such an obvious winner.

    property in a location where it should be easy to let is of course attractive to landlords; but as a result, the price tends to be higher, the rental yield lower.

    finding a whole (small) block for sale as a single lot could be tricky; such things may be sold via contacts in the world of property investment, rather than advertised.

    less specifically, property in general certainly can give high long-term returns. but it takes some active involvement on your part to manage it, even if you use an agent to do some of the work. some people find it's not worth the hassle. it is also difficult to avoid concentrated risk, unless you have so much to invest (many millions of £) that you can buy many properties; e.g. what if the hospital near your block is closed?

    the other general area to consider for long-term investment, which also has a good chance of giving high returns, is shares. you can easily get much more diversified with this: a single fund can spread your capital across shares in thousands of companies worldwide. it can also be much more hands-off.

    3) choice of tax shelter: property inside a limited company.

    not a great idea, really.

    yes, the tax on income inside the company is now at slightly less than basic rate. but that is only if you never take the income out of the company. taking it out, e.g. as dividends, would incur more tax. and while you keep cash in the company, what would you do with it? deposit rates for corporate accounts are much lower than for personal accounts.

    you could also end up paying tax on capital gains twice. if the company sells a property for more than it paid for it, it would pay tax (at corporation tax rates) on the gain. but you'd probably pay more tax if you then took that cash out of the company (e.g. income tax on dividends, or capital gains tax if you wind up the company).

    if you do want to invest in property, the more obvious approach is to do it directly, and to get out of higher rate tax by making high enough pension contributions.

    for every £800 you pay into a personal pension, HMRC will pay £200 into the pension (representing basic rate tax relief), and they will extend your basic rate band by £1,000.

    so e.g. if you are currently £2,000 into the higher rate band, then you could pay £1,600 into a pension, and HMRC would add £400 to that, and you'd just avoid pay any higher-rate tax. (you would still pay 20% tax on the £2,000 via self-assessment, but that is being refunded by HMRC into the pension).

    if your taxable income rises because you go into BTL, e.g. you have £10,000 income from BTL, so you would be £12,000 into higher-rate band overall, then you just need to increase your pension contribution to £9,600 (to which HMRC add £2,400 tax relief), and you avoid higher-rate tax again.

    the pension itself could be invested mostly in shares.

    you can also invest in shares outside a pension. the best place to start is inside a (stocks & shares) ISA wrapper.

    the availability of pension and ISA wrappers, with very generous allowances, which seriously reduce the tax paid when investing in shares, is 1 advantage which shares have over property as an investment.

    if you're interested in finding out more about shares, then look into some of the multi-asset funds which often discussed on here.
    Last edited by grey gym sock; 09-02-2018 at 1:30 AM.
    • kidmugsy
    • By kidmugsy 9th Feb 18, 1:40 AM
    • 10,194 Posts
    • 6,914 Thanks
    kidmugsy
    • #4
    • 9th Feb 18, 1:40 AM
    • #4
    • 9th Feb 18, 1:40 AM
    im so frustrated by myself wasting all my money on cars and women over the years
    Originally posted by wilwil_uk
    Cars are generally a waste of money.
    Free the dunston one next time too.
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