Buying to let

Panzels

I am currently buying a house which is let to students for the coming year, a contract which we are obliged to honour. Therefore we will have to rent another property for ourselves until we can move in to the property we have bought. I am wondering about the tax implications of this. This is the only house we will own and we have no mortgage.

Will we be able to deduct our rent from the income we receive from the property we are buying?

Werdnal

The rent you receive is income and has to be declared. The rent you pay on your own property is your own living expenses and no connection to the letting property. Its a bit like telling the tax man that you won't pay him any income tax on you wages this week as you have to pay your rent instead - the 2 are totally independent and rental income cannot be offset against your own living costs.

Are you fully conversant with all the rules, regs and legal obligations of becoming a landlord? Is the property classed as an HMO and have you looked into the implications of this too - does it need a license from the council, are the H&S regs up to date? Have you looked into insuring the property - normal household insurance won't apply. What about Gas safety cert?

There is a good thread here, which you might want to read and then come back with any specific questions you may have:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Letting, particularly to students or multiple tenants, can be fraught with problems and I seriously wonder whether you have thought this through or done enough research. Did you intend to be a landlord before you embarked on buying this property? Have you seen a copy of the agreement that is in place for the students? There is a lot more to letting than just collecting the rent ...

Have the students already paid any money to secure the property? Any deposit changed hands? Are there guarantor agreements in place incase they wreck the place or decide to party their money away instead of paying their rent? Are you letting it furnished - does all furniture meet current fire safety regs, all appliances PAT tested, does agreement state you will repair, maintain and replace anything that goes wrong? Are you really sure what you are getting into here ...?

Yorkie1

In addition to Werdnal's excellent points, double check what sort of inventory was taken at the start of the tenancy - what hope of identifying damage and retaining amounts from the deposit would you have?

Also ensure you have a copy of the tenancy agreement.

Panzels

Thanks for your comments. We didn't want to be landlords, in fact we can't wait to move in from our one bedroom flat, though I have been a resident landlord in the past. It is a HMO. We have put a lot of the questions about safety, licensing (which it should be) etc to the seller but haven't heard back yet. Thanks for pointing out the other post. I'll have a good read.

kingstreet

Are you really getting such a great deal on this property all the aggro you are inheriting is worth it?

If I'm buying a main residence, having to accommodate the vendor's business interest would be a deal-breaker and I'd be looking elsewhere. There are plenty of other properties...

tbs624

Panszels - welcome as a newbie poster

As Werdnal has already mentioned, you would not be able to set your own living costs down against the rental income from this property.

Go onto the HMRC website and check out the Property Income Manual (PIM) for full info on what you *can* claim for. Look also for SA105 and its related help pages. ETA: See this and this

As the property income would fall within the 2013-2014 tax year you would need to contact HMRC by 5 Oct 2014. If you needed to use a book keeper or accountant their fees can be set down on your tax return.

As for the property's HMO status, you can do some checking up for yourself in advance of any responses from the vendor. If the HMO is a licensable one the Council can confirm whether appropriate certification is in place and whether or not there are any outstanding notices in respect of compliance work that needs completing. Check with the current LL gas certs, elec certs, records of fire safety assessments etc.

Note that there are different types of HMO licensing - mandatory, plus selective and additional, the latter two being at the discretion of the local Council.

On a separate issue, if this property falls under the category of a "small HMO" you may want to check whether your local Council has implemented an "Article 4 Direction" ( usually over past years) which means that specific planning permission may need to have been sought. This can related to "permitted development rights" and/or the reclassification of a property from residential c3 to c4.

As Werdnal has also said, check out which of the three schemes have registration of the tenants' deposits: if the deposits are with DPS , the scheme itself holds the monies. If either TDS or mydeposits have been used then the LL holds the deposit monies which are then subject to an insurance policy for the duration of the tenancy.

Do also be aware that just because current tenants are likely to have already been served with a "S21 Notice" ( of intent to seek repossession) to tie in with the end of their Fixed Term tenancy, they are not obliged to move out at FT end. The notice simply tells them that the LL/owner may proceed to court for repossession of the property *after* the FT end date: if the Ts stay put then you would need to obtain a court order.

You may want to sign up to your local LL association, which may be affiliated to one of the nationals - NLA or RLA. The fees will be tax deductible and would usually entitle you to discounts on things such as insurance premiums. Look also at Tessa Sheppersons Landlord Law site. These can all give you plenty of vital information if you are having to take on the role of a LL for however short a period you think it may be.

As you say you would be buying this tenanted property outright presumably you have negotiated the purchase price accordingly......