Best way to raise finance for 2nd property investment + tax advice

mikeyw

Hi,

I'm hoping to buy a property in the not too distant future at auction and would like advice on the best way to raise finance for it and also the most tax effective way of owning it if we decide to keep it after renovation.

Let's say the property goes for £100K - I have £50K cash so probably need to raise £75K to cover refurb costs etc.

My current property has over £300K of equity tied in to it. Should I just see about getting more money from my current lender against my main property ? or is it better to look elsewhere for better deals ? (currently with first direct) - Do people always tend to go interest only with the finance and hope for the long term capital appreciation if they hold on and let it out ?

Finally i'm a high rate tax payer and my wife lower - should we buy it in her name to reduce tax liabilities ? Better still should we create a company and transfer the property into the company assuming that gives the best tax breaks ?

What exactly can we get tax relief on ? - refurb costs, mortgage payments ?

I guess the key to all of this is getting a good accountant to advise us.

As for the finance is it just a case of getting it approved but not signed until we know whether we are successful or not at the auction ?

Many thanks in advance,
Mike.

00ec25

Sorry can’t help with finance options
However, re tax:
If you wish to be honest your business plan clearly shows the intention is to property develop not to invest in property. That subtle difference means you are “trading” not “investing”, so are liable to income tax on the profits from the sale. Your trading profit would be after deducting all costs of any work plus the finance costs (excluding the loan principal obviously)
If you wish to be less honest (and rely on HMRC’s property sales notifications system not spotting you) then you could do it under CGT and pay tax on the gain less improvement costs but excluding any costs of repairs (rather than improvements) and also excluding all of the loan finance
As for a company vehicle people seem to think this is somehow tax saving, its isn’t always so, let alone adding in the costs of operating one to start with . How do you intend to get money out of the company? Pay yourself dividends? Pay yourself a salary? What is the exit strategy for the company when it sells its property off – very limited tax allowances for companies!

Fire_Fox

Best properties for flipping are not necessarily the best properties for letting if that is what you are implying, make your mind up on a business plan, get finance on that and stick to your plans. Hope should not really be a word in your vocabulary!

TBH sounds like you need to do a basic business or lettings course, HMRC is the best place for taxation advice we only really cover it here in respect of domestic and small scale landlording.

You exchange contracts at an auction, you need to be pretty darn sure you can raise the finance and complete within the month. Approach an independent mortgage broker about your mortgage options.

Thrugelmir

First Direct are extremely unlikely to release equity for the purpose you propose. Not their line of lending.

As others have said. First thing you need to do is construct a business plan and cost everything out including tax.

Are you looking to renovate to sell on or keep to let out?

If to keep. Capital gain or income?

Until you've prepared a plan you don't know the possible outcome. May not be as profitable as you think. For every successful person there's more who would have done better elsewhere with their savings.

mikeyw

Thanks Guys - the problem with an auction is it's clearly difficult to crunch numbers and you simply have no idea what the sale price will be, only your maximum

If it sells for £100K i could spend £25K and convert in to 2 small flats with a value of say £90K and £100K each which would let out for £500 a month so pretty good yields and well as good profit after the refurb if i sold them.

My preference is to keep them as a long term investment so want to minimise any tax on the rental money collected in annually.

My main concern is how i'm going to get the extra money guaranteed from a lender without knowing exactly what i'll need, again it would make sense to get an amount agreed that's likely to be my max.

I'm not expecting this to be easy but I've been wanting to invest in property for some time now and feel auctions give me the best way in.

Thrugelmir

mikeyw wrote: »

Thanks Guys - the problem with an auction is it's clearly difficult to crunch numbers and you simply have no idea what the sale price will be, only your maximum

Use a spreadsheet to do the calculations. This will allow you to see the impact of the various scenarios.

mikeyw

Spoken to first direct - will go through an application with them this evening. They sounded fine about lending me the money though.