Tax On Rental Income

costingbunny_2

Hi
I have posted an earlier message for help with a BTL property although the posters seemed to be arguing amongst themselves so I thought I'd try somewhere new!
I am looking to buy a property to let out with the view of keeping it for 15-25 years and then sell. This is a long term investment.

I have 2 questions:
-How is it best to fund this - I have £40K I can take from my residental mortgage (fee of £695 with rate of around 2.99%, I have £25K savings I can use, there is the option of a BTL mortgage. I am looking to buy a property around £100K. What is the best configuration? The BTL mortgage is the most expensive option but it keeps it separate from my home mortgage etc?
-Our current mortgage is in joint names (me and my partner, not married) I am a 40% tax payer who is self employed and my partner is a 20% tax payer (currently employed but going self employed in 2 months). What is best for tax purposes - can we get the mortgage in joint names but put the house in my partner's name? From my reading, if the mortgage is in my name only, I would pay 40% on rental income which would be too much to make it worthwhile? I am not au fait with all the tex stuff so please forgive my ignorance!

Alos, If we changed our current home to be in my name only and put the new property in my partner's name would this avoid CGT in the future??

The rental income would be in the region of £475 per month (I appreciate this isn't loads but we are OK with having little profit on the rent - I have been lambasted by previous posters for this but I think it is a personal choice - it is a long term option.

HELP!!

G_M

You are asking all the right questions.. not sure of the answers though!
CGT - easy: if your partner does not live there as her (his?) main residence CGT would still be payable. More info here.

Mortgage - you can claim tax relief against rental income on the interest you pay on the mortgage. It can be on the residential mortgage, but HMRC might question this and give you a hard time. Ask you to prove the residential mortgage was used to fund the BTL. Much easier if it's on a mortgage on the rental property.

Tax. No. If the mortgage is in joint names the house will need to be in joint names.

As to the comparative figures: cost of each method Vs tax savings etc, I leave that to mathmeticians who'll be along.....

Jowo_2

Landlordzone has a tax forum whose members include property tax specialists. The type of questions you ask here you should be discussing with a tax expert and financial advisor.

phlash

http://forums.moneysavingexpert.com/showthread.html?t=2318519&highlight=

Advice given to date, for people's reference.

To summarise. You can take a mortgage of £40k out of your current house, the purposes of this would be for the lettings business, and the interest part of the loan is therefore deductible against your lettings business profits...BIM45700. It's quoted in the thread link above.

If you own the house jointly, you will share the profits in line with the ownership of the asset. If you own 75%, you will enjoy 75% of any profits from letting it out.

First question, what profit do you see yourself making on the house? Income less deductible expenses? You can find advice on this scattered across the internet, but once you have a figure we can look at the tax impact.