New LL Advice please

Nitramak62

Hi,

Moving & been unable to sell old house so going to let. The house is in joint names (me & wife) & was wondering how we deal with rent income.

ie Can I name wife as sole LL, as rent will not take her earnings above 40% threshhold or do we have to claim 50% each?

Cheers

Keith

BitterAndTwisted

How much research have you done into the myriad of Landlord & Tenant legislation? If you haven't done much and also haven't joined a Landlords Association the tax implications of your rental income could be the least of your worries.

theartfullodger

B&T is right, IMHO.

However, in answer to your direct question you can do it by gifting your share of the property to her (you can trust her & she you... aye, no worries: No chance of difficulties in the next 35 years...). Otherwise HMRC may well decide to apportion rental income in proportion to ownership share.

wondering how we deal with rent income.

By declaring it the tax-man & keeping very good records.

Make sure you do everything right (safety certificates, handling deposits, permission to let from lender, correct (ie not householders) insurance cover.. ) or you'll be in a worse state of affairs than you currently can possible imagine.

Cheers & welcome to the fun world of property letting!

Lodger
(Now on his 3rd successful marriage...)

Nitramak62

Hi B+T,

Have arranaged landlord buildings cover, looked at emergency cover with homecall + rainbow including annual CP12, have permission from nationwide (Got in before changes so no additional 1.5% until 2013), have EPC from trying to sell, have registered as landlord with local council (in scotland) & set up a letting bank account which will have all let related payments, charges & mortage interst payments going through it for easier accounting.

I have also hired a letting agent - let them have the hassel. I was only interested in the tax issues for the non-exempt part of the let income, but if you feel I have missed anything please let me know.

Lodger,

I think I'll just have to pay 40% on halve of income, wife is bi-polar so isn't keen to have full responsibilty.

BitterAndTwisted

PLEASE don't rely solely on your letting agent! They always only act on your behalf, not in your stead, so the final responsibility for anything that happens will always fall solely on your shoulders. Some agents know a great deal less about LL&T legislation than they should. There are no professional qualifications required to set yourself up as an LA.

Join a Landlords Association asap. The costs are allowable as a business expense.

Have a bit more of a read on here plus pop along the the LandlordZone site and forum for plenty of information which you may find useful

Paul_the_Painter

Also remember that as long as you apply all your costs (mortgage INTEREST, certificates, agency fees, cleaning, replacement carpet, damages, repainting etc.) you may not even make a profit, so no tax to pay.

Tax is only paid on profit.

So assuming you have a 10% management fee, £800 rent, £600 mortgage interest payment, and you have a one month void:

INCOME
£800 x 11 = £8800/year rent (assuming 1 month void)

COSTS
£80 x 11 = £880/year (agency fees)
£800 x 1 = £800 (agency fees - initial let fees)
£600 x 12 = £7200 (mortgage interest)


Total income £8800
Total costs £8880

result is a loss of £80 - no tax to pay

If you assume no void at all
INCOME
£800 x 12 = £9600

COSTS
£80 x 12 = £960
£800 x 1 = £800
£600 x 12 = £7200

Total income £9600
Total costs £8960

result is a profit of £640 - tax to pay on income of £640 @ 40% = £256

These dont take into account all the other costs of letting a house, so if you have a reasonable size mortgage, you should be able to avoid actually making a profit, if you do it is likely to be so small that it is not worth the hassle of having compplex arrangements to reduce the tax bill, especially if your wife doesn't feel up to it.

If you can give some rough idea of your circumstances (mortgage payment, repayment or interest only, how long the mortgage has to run, size of house, anticipated rental income etc) should be able to give you a better idea of how much tax you will end up paying.

Nitramak62

Cheers paul at last some positive input.

Sadly only have a small mortgage on property to be let, 45k against 170K valuation (36K which was reclaimed overpayment to pay deposit on new 235K house). Didn't know if I should remortgage before letting, but only paying 2.5% on nationwide mortage, beat cut off date for extra 1.5%.:) (Only £95 interest amonth:() so unsure if viable to get a say 140K remortgage @ 6%+ buy to let to save tax.

My calcs are

Month let £725 (unfurnished)

So fees are
11 x 72.5 = 797.50 (10% management fee)
1 x 725/2 = 362.50 (Agent set up fee 50% of let - clyde property)
12 x 21 =252 (Directline landlord buildings insurance)
12 X 17 = 204 (homecall emergancy landlord cover)
12 x £95 = 1140 (interest on 45K mortgage @ 2.5%)

So income = 11 x 712 = 7975

fess = £2708

So profit of £5267 (50% @ 20% wife & 50% @ 40% me)

So roughly £1580 in tax to pay per year.

I just can't get my head arround if it's worth taking a 140K remortgage at more than twice present interest rate (2.5%) to clear 90ish K off new 199K mortage at 4.49%. (1162 amonth)

Sorry for any typo's thurdays night is cider night.:beer:

Paul_the_Painter wrote: »

Also remember that as long as you apply all your costs (mortgage INTEREST, certificates, agency fees, cleaning, replacement carpet, damages, repainting etc.) you may not even make a profit, so no tax to pay.

Tax is only paid on profit.

So assuming you have a 10% management fee, £800 rent, £600 mortgage interest payment, and you have a one month void:

INCOME
£800 x 11 = £8800/year rent (assuming 1 month void)

COSTS
£80 x 11 = £880/year (agency fees)
£800 x 1 = £800 (agency fees - initial let fees)
£600 x 12 = £7200 (mortgage interest)


Total income £8800
Total costs £8880

result is a loss of £80 - no tax to pay

If you assume no void at all
INCOME
£800 x 12 = £9600

COSTS
£80 x 12 = £960
£800 x 1 = £800
£600 x 12 = £7200

Total income £9600
Total costs £8960

result is a profit of £640 - tax to pay on income of £640 @ 40% = £256

These dont take into account all the other costs of letting a house, so if you have a reasonable size mortgage, you should be able to avoid actually making a profit, if you do it is likely to be so small that it is not worth the hassle of having compplex arrangements to reduce the tax bill, especially if your wife doesn't feel up to it.

If you can give some rough idea of your circumstances (mortgage payment, repayment or interest only, how long the mortgage has to run, size of house, anticipated rental income etc) should be able to give you a better idea of how much tax you will end up paying.

theartfullodger

Best of luck Nitra..

(For once) you seem to be a new Landlord who's thought about things, done most, asked for advice & only a reasonable path. (Blimey, is this a record!)

As indicated above, beware the agent: You still hold pretty much all the responsibility (eg if Agent holds deposit & goes bust you still have to pay tenant the deposit-which-you-haven't-got back) and should check everything they do.

I find taking them out for lunch once a year pays dividends: Usually they are so shocked & surprised to be treated humanely by anyone they pay attention to your house & needs: (Tax deductible, I think: Well, I claim it). The chat over the oysters & champagne/burger 'n coke could be good education!

Hope it goes well and your life is fun..

Cheers!

Lodger

Gorgeous_George

On average you'll be paying 30% tax on income. It is only worth borrowing the extra if you can invest the capital at a profit. So, for a 6% mortgage you would need 4.2% after tax from the alternative investment.

Let it furnished and 10% of the rent is tax-free. Carpets, curtains etc. should suffice (not sure if there is a minimum amount of furniture required). There are other tax breaks (home office, mileage to name but two).

GG

macgirl

Nitramak62 wrote: »

12 x 21 =252 (Directline landlord buildings insurance)
12 X 17 = 204 (homecall emergancy landlord cover)

Sorry to jump in, but I'm in a similar position to you Nitra, about to let our property as we've (almost) bought another.

Everything is in place, certificates, agent etc, but we've yet to sort the insurance.

Our IFA has quoted £29 per month for Landlord's Insurance but I don't know what this includes. What is your Emergency Landlord cover and what does it cover?

Thanks in advance

Tassotti

£29 per month sounds expensive. However, not knowing the property (size,bedrooms, value,etc), it is hard to say.

I recommend searching google for LLs insurance and see what is covered.

Many companies don't cover for malicious damage by tenants, and, in my opinion, this is very important.

I use alanboswell brokers. The deals that they find me are ideal and I can never beat their price when I search directly.

Tass