Landlord in a mess

TroubledLandlord

OK. What I have done is stupid, stupid, stupid. I know that now. I don't really want to get into the finger wagging lecturing, I do want to get out of this mess.

I am renting out my house without a permission to let, or b2l mortgage. Yes, this is dishonourable and bad. My question though is how I get from this bad situation to a b2l mortgage and a legitimate set up.

Right, I'm living in a home with my wife, with everything in her name. I can more than afford to pay the mortgage on my rental property, even for years with it being empty.

Secondly I'm making a substantial loss on the rented house and so I'm not cheating the tax man. If anything, I'm paying to much on capital gains tax from share trades which are not taking the loss on the rental house into consideration.

However, I DO want to get this sorted.

I've wondered do I:

1. Form a limited company and put the house on the company's balance sheet ?
2. Keep it as a private income ? Do I get an accountant in to do my tax returns ? Do I do these myself ?

How should I handle the transition to a b2l mortgage ?

Yes, by coming clean on these forums I'm probably putting myself at risk. I want to get this sorted though, so any advice is appreciated.

Also advice to anybody else considering going down the route I went, don't. It's bad for so many reasons, even if you can afford everything.

It puts you in a weaker negotiating position, because it could always come out and you'll get held hostage by it.

It complicates things if you ever want to expand and take on another rental property.

Anyway, I know I'm not the only person who is in this mess, hopefully we can start a thread on how to legitimise.

princeofpounds

First of all, don't worry. Masses of landlords are wrongly failing to declare they are renting to their lender. In the past the lenders didn't care, and broadly speaking that is still the case (importantly) as long as they are being paid their interest payments.

It is wrong however - I myself was a tenant who ended up in trouble thanks to a repossession. The main problem is that the bank doesn't have to respect the tenancy that is in place and so the first you find out about it is a court letter if you are lucky, an eviction letter if you are not. Thankfully new legislation is changing that to a 2 month grace period.

So your first concern is whether you can get permission to let. For this, you have to contact your mortgage provider. They are only likely to agree if the LTV is below a certain threshold and the rental income is a certain % over the mortgage payments. If there is no chance of that, it might be better for all concerned if you forgot the idea for a while (even the tenant, who won't want to be asked to move out if the bank objects).

If you can't get permission it's not a crime or anything like that, and whilst the bank can go to court to stop you letting the place they can't sue you for compensation or anything as they haven't suffered any losses.

Dealing with the tax and the letting regulations is much more important than this, but thankfully it is separate. Even if you are making a loss you should have been declaring this to the taxman. It is possible to do without an accountant if you have the time and patience to learn how to fill in the forms. You will need to register for self-assessment to get the necessary process in place I believe.

Otherwise, just concentrate on being a good landlord (you clearly have a conscience, which helps). Protect deposits, do repairs, gas checks blah blah blah and you'll be fine.

LisaLou1982

I agree with Princeofpounds - get it sorted with your accountant and protect your tenants deposit quickly if you havent already done this.

You wont be able to set up a limited company and transfer the property to it - they closed this loophole ages ago!

amcluesent

Right now I wouldn't volunteer information to the greedy, useless banks. Join a LL association to get the paperwork (S21 etc.) and tax returns straight before you get hit with a 'professional' tenant. The LL association should be able to point to accountants who specialise in this area.

new_home_owner_3

TroubledLandlord wrote: »

OK. What I have done is stupid, stupid, stupid. I know that now. I don't really want to get into the finger wagging lecturing, I do want to get out of this mess.

I am renting out my house without a permission to let, or b2l mortgage. Yes, this is dishonourable and bad. My question though is how I get from this bad situation to a b2l mortgage and a legitimate set up.

Right, I'm living in a home with my wife, with everything in her name. I can more than afford to pay the mortgage on my rental property, even for years with it being empty.

Secondly I'm making a substantial loss on the rented house and so I'm not cheating the tax man. If anything, I'm paying to much on capital gains tax from share trades which are not taking the loss on the rental house into consideration.

However, I DO want to get this sorted.

I've wondered do I:

1. Form a limited company and put the house on the company's balance sheet ?
2. Keep it as a private income ? Do I get an accountant in to do my tax returns ? Do I do these myself ?

How should I handle the transition to a b2l mortgage ?

Yes, by coming clean on these forums I'm probably putting myself at risk. I want to get this sorted though, so any advice is appreciated.

Also advice to anybody else considering going down the route I went, don't. It's bad for so many reasons, even if you can afford everything.

It puts you in a weaker negotiating position, because it could always come out and you'll get held hostage by it.

It complicates things if you ever want to expand and take on another rental property.

Anyway, I know I'm not the only person who is in this mess, hopefully we can start a thread on how to legitimise.

Why bother you have got away with is so far,why the change of heart?

You say your at a loss renting, if you go on a buy to let mortgage it will cost you more.

Just carry on has you are, you will be okay, they reckon more than 50% of landlords have not got permission to let from their lenders, and can you blame them with the banks cranking up interest rates to cripple the landlord, and these are the banks we bailed out.

silvercar

YOu won't be able to put the rental income against your share loss, so that is not a concern.

How long have you been renting? Sort out the paperwork and include it in your tax return for the year in question. You may have lost out by not carrying forward losses, but the costs of employing someoen to deal with your accounts could outweigh any benefits, if you only have one property. You can be legitimate on the tax front without consent to let.

Protect any deposit and sort out the gas certificate. Continue paying the mortgage. Where does the mortgage paperwork get sent?

TroubledLandlord

Thanks for the replies.

The change of heart has come because I was renting out house, when I moved to another. I've now moved again and am planning on renting out the 2nd so I'd have two houses rented out.

Whilst I didn't mind riding my luck on the first house, I am nervous about riding it for 2 houses.

On top of that I'm looking to move again in a couple of years time and would rent out the house I'm in now. I definately wouldn't do it on 3 houses because it's only a matter of time before something happened.

I'd look at an accountant to get the tax straight then take the other problems one by one.

You say I can't legitimise the tax if I rent two houses ? Is that when I need to form a company to manage them ?

terryw

TroubledLandlord wrote: »

You say I can't legitimise the tax if I rent two houses ? Is that when I need to form a company to manage them ?

You can surely legitimise the tax no matter how many houses you rent out. What advantage do you seek to gain by forming a company?

DawnW

Why not just ask your lender for permission to let (some are more accommodating than others). They may charge, but not that much. If they don't like it, you may have to remortgage, but most seem ok.

As for HMRC, you need to tell them that you are letting a property, and you can do online self assessment for the tax. It isn't difficult. The things you can worte off against tax are: costs re protecting the deposit, any LA fees, LL insurance, cost of gas checks, any repairs (though not renovations), membership of landlords association, mortgage interest (not capital repayments), possibly other things as well. You won't be able to write off your share losses against tax though. Thing is, unless you are letting Buckingham Palace or something, the tax bill won't be that much - OH and I paid about £250 last year last year between us on a house we jointly own and let out, with everything totally above board, on a house rented out for £600 pcm.

And do join a LL association for all sorts of advice, sample documentation etc. As noted above, it is tax deductable, and will be invaluable if you get a tenant who tries to rip you off.

You are not in a mess, you are paying your mortgage and so on - you just need to sort a few things out. Good luck!

new_home_owner_3

jdturk wrote: »

Apart from the one of fee of £100 a year it costs me no more than my current mortgage is now

It all depends on what situation your in the other person has already said the rental income doesnt cover his mortgage payments, most mortgage companies want it to at least cover 125%, thats before they will even consider giving you consent to let or buy to let.

new_home_owner_3

DawnW wrote: »

Why not just ask your lender for permission to let (some are more accommodating than others). They may charge, but not that much. If they don't like it, you may have to remortgage, but most seem ok.

As for HMRC, you need to tell them that you are letting a property, and you can do online self assessment for the tax. It isn't difficult. The things you can worte off against tax are: costs re protecting the deposit, any LA fees, LL insurance, cost of gas checks, any repairs (though not renovations), membership of landlords association, mortgage interest (not capital repayments), possibly other things as well. You won't be able to write off your share losses against tax though. Thing is, unless you are letting Buckingham Palace or something, the tax bill won't be that much - OH and I paid about £250 last year last year between us on a house we jointly own and let out, with everything totally above board, on a house rented out for £600 pcm.

And do join a LL association for all sorts of advice, sample documentation etc. As noted above, it is tax deductable, and will be invaluable if you get a tenant who tries to rip you off.

You are not in a mess, you are paying your mortgage and so on - you just need to sort a few things out. Good luck!

I would pay your tax, but there is no way i would aproach your lender and ask for consent to let, all you will be doing is highlighting the problem, just by saying your rental income doesnt cover your mortgage makes me think you have little equity.

If you want to get a btl mortgage you will have to pay a massive fee and you will need a lot of equity, if you havent your rate will be nearly 7%.