Renting out house with no mortgage!

moneysaymoneydo

If you are unaware of the taxation issues. Are you fully prepared to become a landlord and all that it entails?

Thrugelmir comment??????????? hmm i shall study for a degree in lanlording before i do anything really bizarre question i am thinking of having kids one day should i become a midwive first or a child psychologist :T

Thrugelmir

moneysaymoneydo wrote: »

Thrugelmir comment??????????? hmm i shall study for a degree in lanlording before i do anything really bizarre question i am thinking of having kids one day should i become a midwive first or a child psychologist :T

You missed my point. Property rental is a business not an investment. Running a business requires a little knowledge of many different topics. Too easy to get carried away by what seems to be money for nothing.

dorset_nurse

£121600 in a savings account at 4% (eg tax free ISA) will net you about £4.9k after a year. £700pm would give you 5.6k (assuming a 2 month void of no rent and 20% tax on rental income). This does not include maintenance or tax allowances etc, or the fact that you are still paying a mortgage on the remaining 18k
Sounds like a lot of extra hassle, and worry to me for no gain.

Rhino666

Thrugelmir wrote: »

You missed my point. Property rental is a business not an investment. Running a business requires a little knowledge of many different topics. Too easy to get carried away by what seems to be money for nothing.

Not sure what the point of your posts is Thrugelmir. I am in a similar situation and require constructive advice rather than patroniisng non advice. If the OP is unable to sell at the moment, as I am but has a property that needs to generate income what other choices are there ?

I am using a friend who is already a landlord for advice and a letting agency to vet prospective tenants. Sure it's complicated but where there is little choice, you do what you need to to make it work and gratefully accept others advice.

We aren't all looking to ship in a bunch of students and make a fortune !!

Answering the OP's original question
As far as I am aware if this is currently your main residence and you move out to rent, you have three years to sell before CGT becomes payable on any profit you may have made selling the property. You need to move back in for six months to re-establish it as your main res. again. income tax is payable on all income from rent less expenses if you are not also living in the property yourself. Mortgage interest is an allowable expense that mitigates against the income taxable here.

I hope this helps :-)

Thrugelmir

Rhino666 wrote: »

Not sure what the point of your posts is Thrugelmir. I am in a similar situation and require constructive advice rather than patroniisng non advice. If the OP is unable to sell at the moment, as I am but has a property that needs to generate income what other choices are there ?

My advice is to take advice.

If you read the post carefully. The OP wishes to hold the property as a pension fund. On that basis its worth understanding fully the implications particularly of tax and the real investment return. Grossing £8,400 a year sounds good but doesn't reflect the potential long term profit.

Loopgames

You're worrying more than necessary. I think you should congratulate yourself for being in such a position to have an almost mortgage free home ready to rent soon.

The rental income will be 100% yours. You need to file an annual return and you can deduct reasonable costs. It's just income tax that you are calculating at the end of the year rather than it being taken from you through PAYE.

Don't be afraid of this step - you'll be better of. As for CGT that only applies to the period you have NOT lived in it. But as someone said their maybe reliefs and grace periods that you can take advantage over.

Don't let it bother you - speak to HMRC they're not all that bad and read up on all this too....information is freely available.

When you are aware of the general issues contact an accountant and speak to them to get a personal opinion on your circumstances.

Good luck.

00ec25

Rhino666 wrote: »

As far as I am aware if this is currently your main residence and you move out to rent, you have three years to sell before CGT becomes payable on any profit you may have made selling the property. :-)

correct

Rhino666 wrote: »

You need to move back in for six months to re-establish it as your main res. again.

not that simple
you refer to the "period of absence rules". These do NOT have a 6 month (or anyother specific) qualifying timescale applied to them and the max period of absence is limited to 3 years. Also if you own the alternative property you are living in whilst your "old" house is let out there are further reprecussions over which property gets charged to CGT meaning you will have to pay CGT on one or the other, you cannot escape it fully

In reality theCGT position apllicable in the OP's case is the normal one as follows (note I have somewhat simplified the formula):
a) you are liable for CGT on the difference between your original purchase price and and what you sell it for, its value when you moved out is irrelevant
b) the % of time you lived in it will be exempt from CGT
c) the % of time you let it out will be liable to CGT but you can deduct letting relief (worth up to a max of £40k) and your annual allowance from this

so your CGT gain G = A - (A x - (A x C but limited to £40k) - £10,600 personal allowance

you pay CGT at either 18% or 28% on G if G>0

Rhino666

Thrugelmir wrote: »

My advice is to take advice.

If you read the post carefully. The OP wishes to hold the property as a pension fund. On that basis its worth understanding fully the implications particularly of tax and the real investment return. Grossing £8,400 a year sounds good but doesn't reflect the potential long term profit.

You make a fair number of assumptions here and in the circumstances I would say you are trying to undermine a realistic option for the original poster.

People with responsibility would most likely consider any long term asset as a potential pension fund. The OP has already stated honestly that if the money were available it may be tempting to spend it. Given current interest rates the return on this property, rented, will most likely be more than would be achievable in any type of risk free investment. I also imagine that the OP appreciated a squeeze on lending, the recession and other factors have seen property prices drop by around 20%. In time there is likely to be a trend change in prices. Letting rather than selling this property keeps the OP in touch with property rather than potentially being shafted if the situation changes.

Advice is all well and good if it is constructive. Clearly from your thanks and posting, you have given good advice in the past

Money_Saving_Dude

Thrugelmir wrote: »

You missed my point. Property rental is a business not an investment. Running a business requires a little knowledge of many different topics. Too easy to get carried away by what seems to be money for nothing.

Can't disagree with this. Lots of thought needs to be done. Otherwise you may find yourself in over your head. The impression I get from many BTLers or BTL-hopefuls is it is like taking candy off a baby.

Yep, until they don't pay up!

And don't think of your £700 pm or whatever as just that. £70 (10% or more) to a managing agency, and then tax on top. Voids, maintenance and just the hassle.

So I think this comment is excellent!

geoffky

some very naive posters here. being a landlord has huge responsibility and amateurs are giving the good ones a bad name...we only have to look on here at some of the horror stories from last winter where some poor people had to wait months for hot water after burst pipes and boiler breakdowns.you are playing with other peoples life's here so make sure you can live up to other peoples expectations as you have a responsibility to understand what the law requires from you as a landlord..far too many come on here not understanding the implications of it all.And discussing it in the pub sounds a great idea..