Timelines on getting BTL Mortgage?

QTPie

silvercar wrote: »

Income tax we have probably covered. By the time you include all your expenses, including the mortgage interest, you wont be making a profit. If you make a loss that is carried forward to the next tax year, but can only be used against any profits on rental income not earned income. So there probably won't be any profits to pay tax on for a few years at least.

Yes, thanks to you, think that I have got that part

silvercar wrote: »

Capital gains tax (CGT) comes into effect when you sell the property. There is exemption for the time it was your principal private residence (PPR) and the last 3 years of ownership. You also have a personal CGT allowance (currently 9,600) and would be eligible for letting relief, worth upto 40k. CGT won't bother you for a good few years.

So the CGT is only payable on the GAIN in value on the price of the property? Say it is worth £420k now. If we sold in 2014, for example:
- if it was worth £450k, then we would ONLY be taxed on that 30k profit on the sale.
- if it was worth £420k (or even less), then we would be not taxed at all on the sale?

I guess that we may be in an odd position where we don't particularly want to make any money on letting the house out: I just want to be able to draw down equity on it and leave it "self-sufficient", then sell it again in a more stable/favourable market (without having to undercut it so far and bend over backwards so badly).

I know that is not without risks: not being able to let it and, later, the market recovering (or at least stabilising) a LOT slower than expected (i.e. 10 years on and still in a mess for sellers).

Thank you silvercar, for your time and patience

QT

silvercar

The CGT gain is calculated in proportion to the time exempt from CGT and the time not. The only events that are important are the buying price and selling price, the price at the time you start letting it is irrelevent for CGT.

Example: If you bought a property for 100k ten years ago, let it out now and then sold it for 550k in 5 years time.

Gain = 550-100=450k.

1st 10 years exempt plus last 3 years also exempt. So 13 of the 15 years are exempt, therefore 2 out of 15 years not exempt ie 2/15 x 450=60k.

You would then use letting relief and your personal allowance to reduce this greatly, but you get the picture.

(Actual calculation is done in months not years and buying and selling costs can be deducted.)

silvercar

Just to add, the value at the time you start letting is the max amount of mortgage interest that would be allowed as an expense to put against rental income for income tax purposes. So worth keeping some adverts/ website info of current prices so you can establish its current value in case you ever increase the mortgage. If it is worth 420k then you will only ever (!!) be able to claim the interest on 420k as an allowable expense, even if you increased the mortgage over this amount in 10 years time.

QTPie

Ok, wow, they don't make things easy...

So if we bought 5 years ago for £330k, sold in 5 years time for £450k (completely off the top of my head), then that is £120k gained. BUT we wouldn't pay any CGT on it anyway (since the first 10 years and last 3 years are exempt anyway)? Basically, if we sell within 8 years, there is no CGT due. Although tax laws are always open to change anyway... so in 5/8 years time that could all change...

We are in a fortunate position of having an accountant already: husband has an established business and the accountant looks after that and our incomes etc. So the actuals will go through him for checking - for our annual tax returns - anyway (so even if I get it wrong, he will be there to check things).

silvercar wrote: »

The CGT gain is calculated in proportion to the time exempt from CGT and the time not. The only events that are important are the buying price and selling price, the price at the time you start letting it is irrelevent for CGT.

Example: If you bought a property for 100k ten years ago, let it out now and then sold it for 550k in 5 years time.

Gain = 550-100=450k.

1st 10 years exempt plus last 3 years also exempt. So 13 of the 15 years are exempt, therefore 2 out of 15 years not exempt ie 2/15 x 450=60k.

You would then use letting relief and your personal allowance to reduce this greatly, but you get the picture.

(Actual calculation is done in months not years and buying and selling costs can be deducted.)

QTPie

silvercar wrote: »

Just to add, the value at the time you start letting is the max amount of mortgage interest that would be allowed as an expense to put against rental income for income tax purposes. So worth keeping some adverts/ website info of current prices so you can establish its current value in case you ever increase the mortgage. If it is worth 420k then you will only ever (!!) be able to claim the interest on 420k as an allowable expense, even if you increased the mortgage over this amount in 10 years time.

Worth remembering, thank you.

I am pretty obsessive about keeping and filing information - so will remember this.

I could be very wrong, but keeping the rental property is intended to be a medium term solution (around 5 years - hoping that the property market settles down a bit by then). But you never know - circumstances can and due change in unforeseen ways sometimes...

Thank you for everything - this thread has been a VERY useful eye-opener!

QT