Buy to let tax

Printer

Hi all !

Hoping someone can help!

I have put an offer on a house with the intention to buy to let. I have my mortgage sorted, just need to sign things off.

Basically cutting the story short this is for investment long term. I can pay the mortgage no problem if the property sits empty but i'm told i will rent it out with no problems.

Basically due to set up charges and all that guff at the letting agent i will not make any money on the property but will own something someone else is paying for.

So with this in mind i have a few questions.

Will i have to pay a maintenace company to look after the property? I think its only the letting agent i will have to pay for but wanted to check. I know when things need doing i'll be paying but i don't really want to pay a company for that privilege.

If i'm breaking even on the cost how much tax will i pay? I'll be renting unfurnished at £450 per month on a repayment mortgage.I know some of you will say use interest only but i want to use repayment.

Well hoping someone comes back with an answer or two!

Thanks

P.

Oh one more thing...anyone know where i can find an excel template to allow me to put together my tax return for this? i'm not quite sure what i'm doing and a template or even an expample would help!

Thanks again

Gwhiz

How the property is maintained is up to you. When I let out property, unless it was complex, I did it all myself or organised the trades directly. The LA will offer this but will be expensive I'd guess.

Re tax. If you break even then no tax to pay. You only pay tax on NET income and there are lot's of things you can include in costs - LA fees, repairs, (set depreciation if it's fully furnished) etc etc - to reduce the NET.

Printer

Thanks! And that is true for a repayment mortgage also. I've come accross information with regard to having to pay tax on the mortgage? If some one can clarify this? It is true that i will not be making any profit though.

Is there a template on the Gov website regarding a template?

tbs624

OP, you say "And that is true for a repayment mortgage also." - note that you can only set the *interest part* of your mortgage payment against rental income.

Have a look at HMRC's PIM here and the helpsheet for completing SA105 here

See also here for a broad overview.

You need to get this right from the start - if you have any specific queries ring HMRC - they don't bite You can also join up to a LL association, a further source of valuable advice: membership fees can be set against rental income too.

If you will only just be breaking even you perhaps need to look at things again - you need to have a fund available for things like boiler break downs and other repair costs. What will you do if your T doesn't pay rent on time/at all after the first month or two?

It's not just about covering the mortgage if the property stands empty either - most LL insurance policies will not provide cover after a certain period of the property being empty and you'd have to look to more expensive specific policies.

BritRael

Printer wrote: »

...I'll be renting unfurnished at £450 per month on a repayment mortgage.I know some of you will say use interest only but i want to use repayment....

I'm one of those who would recommend interest only in this situation.

3 years ago I borrowed 160k IO which allowed me to pay off lump sums at any time with no charges. I also sorted my own life term insurance to cover the duration of the loan. My plan was to pay it off in 24 months. I took 26. This was a very cost-effective and flexible technique for me. I could never have done that with a repayment. I had one almost 30 years ago with the Halifax, but over-payments were prohibitively expensive.
Good luck with your venture

mlz1413

Printer go to the Direct.gov website and look up allowances for rented houses, it should answer your main questions and give you an overview of what records to keep, remember you need to fill in a tax return even if making a loss.

Maintenance is your decision of how your cover it, if you know the area then use local tradesman as and when a problem occurs, for boilers you could get cover from British Gas. If you don't know the area or don't have time to organise maintenance then it maybe worth paying a maintenance company, obviously like insurance you don't get any benefit unless you have to claim.

If you are using a letting agency so that you don't have to be involved it maybe worth doing some basis checks like which deposit scheme they use and get a signed copy of the inventory so that you can see they are doing things right.

Printer

Thanks all.

tbs624 can you explain how i know how much of the percentage is payment and how much is interest? I've looked through the policy but i'm unsure how i calculate this.

BritRael can you explain how you payed it over in 26months with life insurance that covers you for the term loan. I'm not fully understanding what you are saying. Did you just overpay heavily or was the life insurance involved somewhere as a repayment vehicle.?

Thanks again.

ncooper1974

Printer wrote: »

...can you explain how i know how much of the percentage is payment and how much is interest?

Without knowing specifics about your loan (loan amount, interest rate) I'll assume a £100k mortgage at a rate of 5%.

To work out the interest element for the year:
(£100000/100)*5 = £5000, which breaks down at £416.67 a month

Hopefully, your loan amount and/or interest is a lot lower, otherwise if you're renting out for approx £450 per month, there isn't room for profit in this property

mlz1413

Printer wrote: »

can you explain how i know how much of the percentage is payment and how much is interest? I've looked through the policy but i'm unsure how i calculate this.

Ask your mortgage company to breakdown the payment values. Also when you get a yearly statement you should see how much of the capital has been repaid and how much your payments total, therefore the interest value will be the difference.

Printer

I'll ask them to break it down. My mortgage will be a repayment and is at 60k i'm putting down 20k and the interest is 5.49 fixed for 5 yrs.

BritRael

Printer wrote: »

...BritRael can you explain how you payed it over in 26months with life insurance that covers you for the term loan. I'm not fully understanding what you are saying. Did you just overpay heavily or was the life insurance involved somewhere as a repayment vehicle.?

Thanks again.

Hi Printer,

The insurance was life, term insurance i.e. No investment value. I took it out for 2 years and it only 'pays out' if I snuff it. er..I didn't!

As for the sum, I partly paid it off by selling another property (80k) and the rest from saving. I'm single-minded in saving and a bit of a tight-fisted b***ard, so I gave myself 2 years to pay it off and (almost) achieved it. I'm in the fortunate (unfortunate?) position of working in the desert for most of the year so I cannot spend anything, and even when on leave I lead a frugal existance. O well, each to his own huh?
Of course, as you reduce the sum, the monthly repayments reduce also (unlike a repayment mortgage which stays static). Its a great feeling when you pay for the last time.