BTL Taxation

kriss_boy

Thrugelmir wrote: »

£300 a year for maintenance?

Don't forget all the other costs involved in letting. Then there's the void rental periods and tenant defaults.

Based on £425 pcm rent, spilt £230 interest / £195 taxable, are you suggesting its not going to be very lucrative as most of the profit will be eaten up by maintenance?

Do you reckon Id need to have a £150 interest / £275 taxable split to have a big enough yearly profit to fund the likes of repairs etc.

As I say, the problem is the value of the place has dropped so selling it will be painful.

kriss_boy

I think its been advantageous for my friends as they've had notable equity in their flats.... so they withdrew that to reduce the interest on their second homes.

The difference for me is I have very little equity... so its not as though letting my first house is providing some relief on interest repayments on our new house.

Hmmm....

Thrugelmir

kriss_boy wrote: »

Hmmm....

Like a good surfer. Picking the time to jump on a wave is critical.

Overpaying your mortgage may provide the best return in the short term. At least put the property into positive equity in terms of the price that it will sell at (after costs).

Much of the recent profit made in BTL . Was due to capital appreciation. Not rental income.

kriss_boy

Yea I really appreciate the advice.

My thoughts options are,

1) If I sell my house I will lose my original deposit, and have to subsidise the sale with around £2000-£4000 from my own savings.

This could defer buying the new home by up to 4/5 months.

2) Buy the new place in March, and rent out my first home.

The after tax profit may only as little as £1250 a year, but the place could also rise by £750 a year.

5 years later I'll have taken £6,250 in rent, and dragged the place a further, modest £3000/£4000 out of negative equity.


I personally cannot see prices dropping further... but similarly I could fully understand property prices not rising either for 4/5 years.


In the new year I'll speak to a financial advisor and get the old calculator out.

kriss_boy

Thrugelmir wrote: »

Overpaying your mortgage may provide the best return in the short term. At least put the property into positive equity in terms of the price that it will sell at (after costs).

I think we've just got to the point where we feel our lives are on hold until we can get this family home. We dont want to overpay our cheap 1.7% mortgage, but I appreciate we could equally just continue to save.

We can buy it in March/April if we hang on to this place... otherwise it might be a lot later in the year. Im just concerned that if things pick up we will lose out again, buy buying at the peak and missing the trough!

somethingcorporate

Being a landlord is a lot more complicated than simply crunching the numbers.

You have a serious amount of legal and financial responsibilities. Difficult tenants, difficulty finding tenants, useless letting agents, monthly voids, deposit protection, calls at 3am in the morning when your tenants have blocked the toilet or lost their keys, professional tenants that do not pay the rent but you have months of process to enable you to chuck them out, gas safety certificates, PAT testing etc etc.

For the sake of a couple of grand I would sell and move on with your life. Being a landlord is a business and should be treated as such. If there is no logical reason to be one aside to avoid a small amount of loss on a property offset by a massive personal investment of being a professional landlord you may want to give it a miss.

kriss_boy

Time to ask Mummy for some money!

Thrugelmir

kriss_boy wrote: »

1) If I sell my house I will lose my original deposit, and have to subsidise the sale with around £2000-£4000 from my own savings.

To put this into perspective. Consider that the house you are considering purchasing may well have fallen in price further. So you'll need to raise less to bridge the gap.

In a rising property market the differential between different property types widens.

unmissable

Why avoid tax? Its cheaper than interest.

Consider this:

You get an income of £10,000 a year

Less £2,000 for expenses (non mortgage interest expenses eg management fees etc)

Your mortgage interest is £8,000.

Net result, no loss , no gain (other than capital gain)

OR

Income of £10,000

Less £2,000 for expenses (non mortgage interest expenses)

Mortgage interest of £4000

Profit of £4000 but pay 40% tax on profit (£1600)

Still have £2400 in your hand. Still have capital gain.

Conclusion:

Throw your money at the tax man rather than the banks, you will be better off!

These calculations work on a sliding scale.