house renting any help appreciated

flowers2veg

Hi all

I have inherited my Mothers house which still has a mortgage on it of 25,000 the house itself is currently worth 88,000. Apart from the difficult housing market, I would really like to keep Mums house for us to retire in, but as we have our own mortgage to pay it would be difficult to pay a second mortgage. The house will be in my sole name, what I was wondering is what would I have to pay tax on in regards to renting, which would be about 400 per month I earn 11,000 a year. Also if in the future after I had rented I found that I had to sell would I pay CGT on the whole amount of house or just that which I had paid for. I hope this makes sense to you as I am in a confused mess as what to do for the best and really do not want to sell Mums house. Many thanks

00ec25

I appreciate its a difficult time but you have glossed over the mortgage question. As your mother has died the mortgage cannot carry on in her name so what is happening with it? It will have to be paid off so are you taking out a new mortgage in your name to pay it off with or is there enough cash in the estate for you to clear the debt without needing a loan yourself?

if you are going to have to borrow in your own name then you either have to :
a) increase your own mortgage on your own house ; or
b) get a Buy to Let mortgage on your mother house, but you may struggle to meet the conditions for that - you need to check with a mortgage broker but many BTL mortgage require you to have a minimum £25,000 income (you will pass the other BTL tests of 25% equity and rental income of at least 125% of the mortgage payment)

as for tax
Income tax - you will pay income tax on the net profit from the rent - ie £400 minus all the costs associated with being a LL - the costs are many and varied so you may only make a small net profit and so not pay much income tax anyway

Capital gains - it is not your main home so you will be liable for CGT (but only when you sell it ) on the difference between its probate valuation at the date of mother's death and its eventual sales price. Note the probate value is not what you "paid" for it, its what the property is worth on the open market at the time your mother died (any mortgage is irrelevant for CGT).

as for becoming a LL there is a huge amount involved in this - read GM's monumental post explaining what is required to become a LL
http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

flowers2veg

Thank you so much for your reply.

The mortgage is currently being paid by us as the mortgage company was threatening that if I did not pay it I would have to pay all these costs so I have been paying it since Mum died. I have been doing probate myself as there is no money in the estate apart from the house and we do not have any spare. You are right I have no idea what is involved in renting the house but the mortgage company has told me that when probate comes through I will have to apply for the mortgage, but before that I have to get it changed into my name. Though I was thinking of putting in both my husbands and mine giving us a total income of 36000. This is really much more complicated than I had thought you have been so helpful thank you

CLAPTON

in general the ownership of the house will have to match the names on a mortgage

flowers2veg

Yes that is what I was thinking and was planning to put the house in both our names

alexanderalexander

flowers2veg wrote: »

Thank you so much for your reply.

The mortgage is currently being paid by us as the mortgage company was threatening that if I did not pay it I would have to pay all these costs so I have been paying it since Mum died. I have been doing probate myself as there is no money in the estate apart from the house and we do not have any spare. You are right I have no idea what is involved in renting the house but the mortgage company has told me that when probate comes through I will have to apply for the mortgage, but before that I have to get it changed into my name. Though I was thinking of putting in both my husbands and mine giving us a total income of 36000. This is really much more complicated than I had thought you have been so helpful thank you

As said above, it is the mortgage which is the real issue. It sounds like a buy-to-let mortgage in your and your husband's joint names would be sensible and feasible (this would probably involve putting ownership of the house in your and your husband's joint names too though). I'd advise you to find a decent independent mortgage broker as opposed to applying direct to a lender, as you have relatively complicated circumstances with which a broker would probably be helpful.

As for becoming a landlord, don't be daunted -- as you have a lot of equity in the property the rent should more than cover the mortgage repayments (and maintenance costs etc.) so no worries on that score. If you're not totally confident with the legal and practical aspects of running the letting yourself (and there's a lot of regulation to contend with...) I would suggest that you get a reputable letting agent (try to find a local recommendation which is ARLA registered). Bear in mind that there may be start-up costs in order to bring the property up to the legal standard for letting -- if you don't have the money to hand you might need to increase your new mortgage slightly to cover these. A decent letting agent should be able to advise you what the legal standards would be for your property.