Buy to let Top Tips?

StephNotts

We're taking out a buy to let mortgage on our current house as we know it won't sell quickly and it's more valuable as a buy to let. This means we're putting that money towards a mortgage on a new house (that is the equity we're releasing on the Buy to let). The BTL mortgage is about £600 a month and the rental income will be circa £950-£1000. We're not natural landlords and want to make sure we don't make stupid and expensive errors. Does anyone have any top tips for us? We'll put the the rental income in a separate account, managed by my DH as he doesn't work (presuming any surplus left after repairs and renewals will go towards his taxable allowance?) Do we really need to pay 8% of the income to a lettings agent? We live in the same town as the property we're letting out. Should we assume that we do things like garden maintenance once tenants have moved in? Anyone we should actively avoid? Have people had good experiences letting to DSS tenants? House has 4/5 bedrooms and a garden and would suit a family really well. All that jazz really - would be very grateful. We've just had an offer accepted on a great house quite a bit sooner than we expected so something that we were doing in the summer we're now doing..... NOW! Eek

Many thanks

Steph

BitterAndTwisted

Would you be able to pay both mortgages should something unforeseen happen and you've no tenant paying the rent?

G_M

The first potential problem you have is tax. Tax is payable on the rental income. However you can offset certain expenses against the tax liability. One of these is mortgage interest. (Interest only, not the capital repayment element).

However, since the BTL mortgage is releasing funds to use on a different property, rather than to buy the BTL, HMRC may, if they investigate/find out, disallow the mortgage interest as a legitimate expense. This would significantly increase your tax liability.

Further to this, my best advice is to read this post and ALL the links therein.

StephNotts

Many thanks for these, very comprehensive! Lots of reading for me tonight then :-):beer:

anselld

Read ..
"How to avoid property tax" Carl Bagley
"Successful Property Letting" David Lawrenson

.. Not sure I agree with G_M on the tax - I think it is easily arguable that you are taking the BTL mortgage in order to create the property business, ie you could not have done so otherwise.

G_M

anselld wrote: »

Read ..
"How to avoid property tax" Carl Bagley
"Successful Property Letting" David Lawrenson

.. Not sure I agree with G_M on the tax - I think it is easily arguable that you are taking the BTL mortgage in order to create the property business, ie you could not have done so otherwise.

I agree it is arguable. Just wanted to highlight the issue as it's not a standard, straightforward interest-is-tax-deductable situation.

It's actually the reverse of a situation which regularly arises here:
New landlord raises a mortgage on their existing home in order to buy a BTL property. HMRC generally accespt that this is tax deductable since the mortgage was raised in order to finance the BTL purchase, even though it was secured against the original home.

In this case the mortgage is being raised to finance a new home, so the purpose of the mortgage is less directly connected with the BTL.

But I admit only HMRC could say .......

00ec25

StephNotts wrote: »

We'll put the the rental income in a separate account, managed by my DH as he doesn't work (presuming any surplus left after repairs and renewals will go towards his taxable allowance?)

tax again
you do realise that if the property is owned by both of you then it does not matter who receives the money, the rent is "earned" by both of you and each will have to account for the taxable profit split between the 2 of you according to your ownership proportion

zappahey

00ec25 wrote: »

tax again
you do realise that if the property is owned by both of you then it does not matter who receives the money, the rent is "earned" by both of you and each will have to account for the taxable profit split between the 2 of you according to your ownership proportion

Not necessarily. Google for "beneficial interest" and "declaration of trust" with regards to tax on rental income.

flora48

As you are planning to let your own home it may well be better appointed than a usual rental property. Make sure that you remove items that are not necessary, eg dishwasher etc as you will be responsible for maintaining them under a tenancy agreement. I have just had my fingerss burnt over a power supply to out-buildings. As the power was there at the start of the tenancy I have just paid almost as much for that as the rewire of the living accomodation. It would have been better for me to have had out-buildings disconnected before letting.

Tomsmum

Finding a BTL mortgage without silly fees is quite a challenge!