Buy to Let - How I made £100 @ month

gallygirl

The Inland revenue's advice is that you can offset mortgage interest if you can show it was related to the BTL - so if you can show you went from a 100 to 150k mortgage and used the 50k for btl you will be ok.

Most costs such as solicitors etc can be offset against tax, and any loss carried over - you can only use once though so can't take into account for Capital Gains Tax when you sell.

Re bathroom costs etc - cost of upgrade can't be offset against tax, but new / replacement costs can - this is crazy - you can offset costs of putting in new bathroom suite if not there before or totally wrecked, but not if you are upgrading ebcause you want to be a good landlord. ??? Not sure how IR investigate/approach this.

Pal

The Inland revenue's advice is that you can offset mortgage interest if you can show it was related to the BTL - so if you can show you went from a 100 to 150k mortgage and used the 50k for btl you will be ok.

Ok - Sounds good.

Most costs such as solicitors etc can be offset against tax, and any loss carried over - you can only use once though so can't take into account for Capital Gains Tax when you sell.

Does that include purchase costs as well as ongoing costs like management, solicitors or tradesman?

Surely the phrase "offset against tax" is misleading? I thought you could only offset against costs against income, meaning that you get tax relief (40%) of the costs. You do not get the entire outlay back against your tax bill.

Re bathroom costs etc - cost of upgrade can't be offset against tax, but new / replacement costs can - this is crazy - you can offset costs of putting in new bathroom suite if not there before or totally wrecked, but not if you are upgrading ebcause you want to be a good landlord. ??? Not sure how IR investigate/approach this.

What is the difference between an "upgrade" and a "replacement" bathroom? Surely you would not replace a bath with a completely identical (i.e. old and broken) one unless you were being a real !!!!!! landlord? ;D

deemy2004

You offset the costs against income so its 100% not 40%

I.e. costs £1000
Income £1100

Thus your taxable on £100 @ whatever rate.

Thus your costs are offset by 100% and your only taxed on your profit. Unless there are some obscure special rules for buy to lets.

Furthermore if you make a loss on buy to let and your working (PAYE) you are due a tax refund

whitevandriver

Thanks for all repies, some usefull feedback esp re Housing Benefit claw back.

I do need to sort out a mortgage as it is not too productive have an all equity investment when I can gear it up.

Despite the regular panic stories in the press I will continue to keep an eye open for more opportunities. If you get the basics right re location, target market, finance and market levels for capital and rental values B2L still makes sence in a falling market.

This flat was valued at £68K. I bought it for £64.5K and spent £1,500 in refurb, £1,200 in acqui. costs and c £700 for plumber & sparks.

derbyjo

Has anyone had problems with DSS tenants, i had one who told me his claim wasn't settled with the DSS, so I said it was fine and for him to arrange for the DSS to pay me when it was settled, instead they paid him and he left owing me £1000. When I approached them and suggested he had stolen their money they said they wouldn't take it back from him. I have also found some BTL mortgages will not agree to DSS tenants and it is more difficult to get insurance for the property.

dunstonh

The figures don't look that great for the amount of risk taken.

£100pm doesnt leave you much scope for repairs etc. One bad tenant and you kiss good bye to the profit. Considering the amount of money involved and the potential hassle over the years, clearing £100pm seems very low.

If there is a shift in interest rates or a longer term house price decline, it could leave you out of pocket.

AuntyJean

Not sure if this is the right place for this question so please tell me if it is not.

My parents both died and I inherited the house I was living in with my husband. The house was put into joint names.

About 7 years ago I walked out & left my husband there. He has now found a new woman(!) and wants to sell the house.

I know it will have to be 50/50 and as I am 50yrs old this year I could not afford the 15 year repayment mortgage on my own.

So, I thought of buying to let (surely this is an investment I should not miss?). If the house is valued at £150k I will need to borrow £75K. If I get tenants in (furnished 2 bed house) I suppose I could get £500+ per month but which leaves me to find about £150 pm for the difference + Life Assurance (which I presume is compulsory).

My question is what will the taxman want from me? Will he deem the £500 as income? Is there any way round this?

Any other help and advice would be greatly appreciated. I only have a few weeks to make up my mind.

Jean

blackice_2

Not sure if this is the right place for this question so please tell me if it is not.

My question is what will the taxman want from me? Will he deem the £500 as income? Is there any way round this?

Jean

Hi

With answer to your post...

In that situation I would personally get interest only mortgage, it means you wouldn't own the property at the end totally but if you got £75K stake and took £75K on Interest only @6% it would be £375 a PCM...

in 25 years time if the house was say worth £400K then you would simply sell it and pay the £75K back out of that.

Another option is to split the house into 3 rooms rather than a 2 bed and call it a bed sit, you would get more rent this way abou £65 x 3 per week (£780 PCM) but of course there is more chance of bad tennants, but if DSS pay they tend to do a deposit scheme as well nowadays.

You can claim tax against general repairs and decorating etc, plus against the interest on the mortgage (hence why interest only is preferred by most landlords)

If you earn say £500 PCM, £375 will be mortgage off then other stuff may mean you only end up paying tax on £100 or so @ 22% self assesment or 40% if you go over the £30K income mark.

Any tax questions use https://www.taxationweb.co.uk

I hope this helps you.

Adamskii_2

Has anyone had problems with DSS tenants, i had one who told me his claim wasn't settled with the DSS, so I said it was fine and for him to arrange for the DSS to pay me when it was settled, instead they paid him and he left owing me £1000. When I approached them and suggested he had stolen their money they said they wouldn't take it back from him. I have also found some BTL mortgages will not agree to DSS tenants and it is more difficult to get insurance for the property.

Yep, I used to have a BTL house, and was persuaded by my letting agent to take on a DSS tenant. She was a very respectable middle aged lady with 2 teenage children and she was no trouble whatsoever throughout her tenancy.

The problem came when I decided I wanted to sell my house. I gave my tenant the necessary notice etc, and she contacted the local council about alternative housing. Thanks to all council housing being sold off, they had nowhere to rehouse her. Their 'advice' to her was that if she couldn't find alternative private accomodation, that she should stay in my property until she was legally evicted. In fact, this wasn't just their advice, if she had left without being evicted they would consider her having made herself 'intentionally homeless' and would have no obligation to rehouse her. Luckily for me my tenant managed to find another private landlord who was prepared to take DSS tenants, although it still delayed the sale of my house by a couple of weeks.

Having looked into the legality of the councils advice, I discovered that this policy is pretty much standard throughout the country. I'd think very carefully before I took on another DSS tenant in my other BTL property.

garysletters

Going back to the original post, you have been told that you can claim the interest payments on the extra 50K you took out on your residential mortgage against tax. I have to say that I would be double checking this ASAP. as far as I am aware, you cant claim the interest back from a residential mortgage, certainly not if the mortgaged house is not that being rented out.
Secondly, you mentioned you could claim the money for the solicitor against "tax".
Any fee to do with the purchase (i.e. solicitors fees, stamp duty etc. ) can only be put towards capital gains tax when you sell the house. These fees are not deductible against the rent.