Buy to let

maggiel_3

Hi

Our home is worth about £180000 and we are looking at buying a house to rent out at about £110000, we have an existing mortgage of £10,000 left to pay.

The house we want to buy is for our daughter and partner to live in and rent from us for a few years and then we would sell it to them. They cannot get a mortgage at the moment as he is self employed and only has one years books.

Is this feesible, are their tax complications for us?

poppysarah

Yes. You'd be running a business. Seek advice from an accountant.
You'd have to pay cap gains on any profit when you sold on. Be responsible for gas safety, repairs, etc. And what if the house is valued less than you pay for it when they want to buy it?

If they work and don't claim HB (now called LHA) then it's less problematic but some btl lenders might not allow you to rent to family.

Got to think if they split, and he stayed in house, what happens then.

And it's a massive debt to be taking on just to provide your daughter with a home. Your mortgage is almost paid off!

IveSeenTheLight

poppysarah wrote: »

You'd have to pay cap gains on any profit when you sold on.

Just to clarify the capital gains part.
It's only on the profit and after the allowable deductions are made.

Hence if the property was bought for £110k and in 2-3 years was worth £130k, then the profit is £20k.

From the following link http://www.hmrc.gov.uk/rates/cgt.htm, you will see that each individual has an Annual Exempt Amount, meaning if the OP and their partner bought the BTL property in joint names, they would as of this year be allowed £10,100 each of exemption, thus there would be no capital gains to pay.

If the property was valued / sold for £150k and again using todays figures, the calculation would be as follows: -

Capital gains = £150k (sold price) - £110k (purchase price) - £20,200 (allowances for a joint BTL) * 18%

or £3,564

kissjenn

Following on from PS's answer double check the benefit regulations. I have a sneaking feeling that you cannot claim Local Housing Allowance if you are renting the property from a member of your family. Too much room for collusion I assume.

I'll have a look and double check, the rules should be standard throughout UK.

I appreciate it doesn't apply at the moment and may not bother you but if your daughter and partner aren't working or she has a baby and his business fails etc then they will get no help for housing and you will either have to fund them yourself or evict them...ouch and double ouch.

td

according to shelter uk you can still claim housing benefit if you are renting from family but there must be a proper tenancy agreement and it must be regular (ie not saying don't pay if they can't afford it and then pay when they can). You will be taxed on any profits (although this can be ofset against mortgage interest) and if you don't charge somewhere near the average rental for the area you may be charged tax on what rental value should be rather than what you are charging.

hth