basic help need with BTL

costingbunny_2

Gorgeous_George wrote: »

It is the profit that is added to your income. You can offset interest upto the value of the property when first let regardless of where that loan is secured.

You cannot save money by having a higher mortgage rate.

GG

I'm sorry for being so thick but I dont really understand this - at present I am a higher tax payer so if I am taking rent of £400 pcm for example, is this classed as income as well, ie, I will pay further tax on £4,800 per year? I am self employed at present so understand tax returns etc - on a rented property can you offest certain things like i can with my business. Sorry for being so slow

costingbunny_2

Gorgeous_George wrote: »

I wouldn't pay £75K + costs if the rent is only around at least £400.

Tax evasion is against the law.

For clarity, profit = income minus costs.

Income (at £400 per month) is £4,500 per year assuming a few weeks are void.

Costs include mortgage interest at 5% (£3,750 (on £75K)); insurance is another £200; gas safety certificate and servicing another £200; 10% of the rent for wear and tear is allowed so that's another £450.

We have costs of £3,700 and nothing has gone wrong yet. What if interest rates rise..., or the tenants trash the place and fail to pay rent?

I wouldn't worry too much about tax.

GG

Thanks - I feel very reassured - I have no intention of evading any tax!
I am not borrowing £75K at 5%, I am borrowing around £40K at around 2.4%. The point of doing this was to invest - the savings I am putting into the property this year earnt me nothing compared to the past few years - am I not allowed to buy the property and rent it out even if I only cover my costs - is this wrong? How else do folk do BTL?

Dan_1976

LOL harsh GG, tax avoidence is not against any law.

To be honest at the figures are small so keep it simple. But, you can offset the interest payments again the income so you wont pay 40% tax on your profit.

Lots of amateur landlords are slowly being stung by higher tax bills, cgt and other things they dont budget for.

Your lucky, your borrowing a small amount so the options may not save you a large amount of money.

See a broker, a good one whole of market, who spend time with you to look at your options.

phlash

GG.....

Not sure that is correct. Pay attention to BIM45700 and the purpose of the loan.

In my understanding, I believe the following...

The £40k BTL loan was for the purposes of the letting business and is therefore deductible.

The residential loan was taken out before the lettings business existed and was not for the purposes of the business.

So, when the lettings business commenced, it had a £75k asset with £40k of borrowings and £35k in its capital account.

I believe the OP would have an asset at £75k, with allowable loan interest on £40k. If they had took out a further £35k advance on their residential mortgage to fund the capital account, using this cash to put down against the BTL, then your ineterest deduction may be allowed, as it was for the purposes of the trade.

But as it stands, I believe they will only get relief on the £40k loan interest.

PS. If the BTL property goes up in value, and the OP refinances, the OP will not be able to receive interest relief on any borrowings over the initial market value of the property, i.e. £75k. The OP can borrow up to whatever is left in the capital account of the business.

phlash

costingbunny......

I think that some frank advice is best....

There is some really good advice about being a Landlord online, but it would take a week or two to read through. Quite honestly, your best bet is to read as much as possible, and then come back here in a fortnight with any queries and discuss through anything you are unsure about.

At the moment, you will not get enough specific advice in order that you are informed and then give a competent level of service to your tenants.

Some timely investment of your time now, could save you much more later on. It's a bit of a minefield, andyou should know where your treading!

Thrugelmir

costingbunny wrote: »

[I am a higher rate tax payer but my partner is not (we are not married) - could he have the property in his name???

And whose name will the mortgage be in?

What happens if you fall out?

Dan_1976

GG you implied the OP was about to commit tax evasion and I was trying to point out that it was tax avoidence, two different things.

I am not trying to say that I am 100% correct and the OP should follow my word as if it were by God!

I am express my opinion and offering some issue to maybe or maybe not consider.

Obviously your word is spoken from a higher level than God and we may as well rename this place GG's MSE, I am sure Martin would agree, we should hand the forum over to a guy/girl?? who names him self over a Small chimp who hangs around with the guy in the yellow suit!!

costingbunny_2

Thanks for all the advice although, tbh, I am more confused than ever. Folk are talking about my borrowing on the BTL mortgage although I am not getting one of these??
As for falling out with my partner etc, we have our home in joint names and have been together for 11 years - the idea was to put the flat in his name as he is a lower tax payer. The legalities of this do not bother me re: falling out etc as I have provisions for this as I work for a solicitor's practice.

I think I will seek advice from some other people once I have some figures from my mortgage company re: borrowing against the house. No offence, but there seems to be more bickering between posters here than straightfoward simple advice!:D

phlash

costingbunny wrote: »

Thanks for all the advice although, tbh, I am more confused than ever. Folk are talking about my borrowing on the BTL mortgage although I am not getting one of these??
As for falling out with my partner etc, we have our home in joint names and have been together for 11 years - the idea was to put the flat in his name as he is a lower tax payer. The legalities of this do not bother me re: falling out etc as I have provisions for this as I work for a solicitor's practice.

I think I will seek advice from some other people once I have some figures from my mortgage company re: borrowing against the house. No offence, but there seems to be more bickering between posters here than straightfoward simple advice!:D

Seriously, think about reading through stuff first. It means you might stand a better chance understanding all the advice given.

Dan_1976

Ignore? What are you on about?