Tax implication of 2nd property please

Radarjet

I have my own house with a mortgage on it where I live. Currently LTV 37% and very manageable.

I bought an £80000 house in Oct 08 solely in my name to lend out to a friend who needed somewhere to live safely.
I had £50,000 cash and extended my own mortgage for the additional £30,000. The lender didn't ask any questions as to why I wanted the equity release, all done in 5 mins on phone, and I didn't volunteer the information so in effect I paid cash for that house.

I pay for upkeep - repointing, heating overhaul etc, she pays for the ulilities/council tax etc. I don't charge her any rent at all.

I recognise with hindsight that there may have been a benefit to have paid the lump sum off my house and put the mortgage on the second property but it was already in the downturn time and I didn't have the time to faff about with new applications and potentially get stuck in red tape.

Sooo as a higher rate tax payer what are the implications for me now ....
Can I claim back some of the builders/heating engineers/upkeep fees ?
How much do I need to state as there is no income from it ?
Ought I look to swap round my finances ?

What else do I need to consider ?

Many thanks in advance for your time and any recommendations you may have.

Debt_Free_Chick

Radarjet wrote: »

Sooo as a higher rate tax payer what are the implications for me now ....
Can I claim back some of the builders/heating engineers/upkeep fees ?

Claim from whom? No - these are your normal maintenance costs. You could probably claim them as a tax-deductible expense i.e. an expense that can be deducted from the rental income but ...

How much do I need to state as there is no income from it ?

You are running a buy-to-let business so you need to ring-fence all the cots - and any rental income - relative to this property.

Income would be nil, expenses would be those that relate to running that business. To keep things simple, you might simply want to just focus on tax-deductible expenses.

Ought I look to swap round my finances ?

I can't see it would make any difference, unless you can get mortgage products that are "better" than what you've got. Bear in mind any redemption penalties on the current mortgages.

What else do I need to consider ?

See above - ideally, you would be running this with a business mind, but you seem simply to have done a favour for a friend. But remember this "business mind" for when the friend moves on, if you intend to let the property and collect a proper rent. And bear in mind the more formal responsibilities/obligations you will have as a Landlord.

When you come to sell this property you may have a CGT liability to pay.

Pitlanepiglet

I'm not an expert but I have just disposed of a second property. Ultimately your purchase costs and "improvements" (not repairs) can be offset against any CGT liability

As DFC says you can offset expenses against income but you don't have any income from the property. You can't offset expenses from a second property against other income so not against your own salary tax bill etc.

Radarjet

Quote:
Originally Posted by Radarjet
Sooo as a higher rate tax payer what are the implications for me now ....
Can I claim back some of the builders/heating engineers/upkeep fees ?

Claim from whom? No - these are your normal maintenance costs. You could probably claim them as a tax-deductible expense i.e. an expense that can be deducted from the rental income but ...

Yes I did mean it as a claim purely as a tax deductible expense. Thank you DFC. I wasn't aware whether I could claim these expenses as it was a second property.

Thanks Piglet. I'm not likely to see any CGT liability for a good while to come so no need for me to fret over it.

You can't offset expenses from a second property against other income so not against your own salary tax bill etc.

I think this is what I was being advised about but I was recommended to swap mortgage to second property so I could offset expenses but perhaps its not as big a deal as it sounded. Afterall , its just purchase costs and a new heating system, not an extension or anything .

I think she'll be there for a couple of years or so..

Many thanks