Renting out a flat - which type of mortgage

JimmyTheWig

I didn't know that, Holly. Very interesting.


Thanks,

Jim

AlexMac

I'm doing what Werdnal advises- offsetting the whole of a mortgage against rental income on the grounds that while the loan is a nice low-interest one secured on my primary residence (and equivalent to only about 25% of its value - so a really cheap deal) it was used to fund the purchase of one, and capital improvements to the other of my two modest BTLs. So it's very tax-efficient and, as it's an interst-only loan, easy to process in terms of the annual tax return.

And as regards your wider question about whether this is a good idea- I think so, unless you can sell your flat fast at a very good price. If it's in an area where there's a healthy rental demand, with healthy value-to-rental ratio, it's probably more viable to keep the flat and rent it out; we're getting a great 6.7% p.a. return on capital value for a long-term 3-year let to a social landlord (so consider Housing Associations and Councils locally if you don't mind possible heavy wear and tear), so we can afford to let the other one on a soft-ish rent to minimise the tenant turnover and voids which we'd risk if we set a higher rent.

And while you've got to be efficient, thorough and legally compliant- as you can be if you do your research here on this forum - hopefully you'll have many problem free years as we have since becoming accidental landlords 18 years ago. Good luck

holly_hobby

AlexMac wrote: »

I'm doing what Werdnal advises- offsetting the whole of a mortgage against rental income on the grounds that while the loan is a nice low-interest one secured on my primary residence (and equivalent to only about 25% of its value - so a really cheap deal) it was used to fund the purchase of one, and capital improvements to the other of my two modest BTLs. So it's very tax-efficient and, as it's an interst-only loan, easy to process in terms of the annual tax return.

Yes, perfectly permitted (ensure there is a clear audit trail between the 2 for HMRC inspection if requested), and that only the interest element of residential borrowings actually used to finance the business (ie capital injection) is being offset.

Holly x

decker27

All great information - thank you.
I have looked on the internet but can't find an example spreadsheet where I can plot out my outgoings against incomings in terms of renting my flat out. Can anybody point me in the right direction?

holly_hobby

Just make one up on excel - simples.

H x

decker27

Thanks holly, I am fine with creating a excel spreadsheet but I wanted an example so I knew I had covered all my outgoings*, before working it against my incomings to work out revenue

* Ground rent, service charge, council tax, managed service fees, etc

holly_hobby

Sorry, i see what you mean ...

There is a great sticky on permitted deductions, and/or HMRC will help guide.

Im a bit pressed right now, but when i get 5 mins later I'll draft a list for you.

Hols x

agrinnall

Or just do a search of the forum, it's a subject that comes up quite often and you should be able to find a suitable list in a previous thread.

holly_hobby

The sorts of expenses that you can deduct from the rent that you get are:

• utility bills in your name (ie if you rent out on a fully inclusive basis)
• the cost of decoration, replacement of like for like damaged fixtures and essential repairs (but not improvements to the property, such as extensions, which is a CGT deduction )
• any rent or ground rent that you have to pay
• professional fees such as letting agents and estate management, accountantancy and associated legal fees
• mortgage and loan fees and interest directly attributed to the business (let property), either a mge used to pch the property, capital withdrawal (ie BTL remortgage - capped at a mge equal to the value of the property when entered it entered the business), capital injection finance
• cost of gas safety certificates or similar requirements
• landlords insurance
• cost of travel to the property (but the visit and cost must be solely associated to the business and not an incidental part of travel for another purpose)

There are the bare bones for you, you of course will want to do your own research into this, and you may wish to engage an accountant to assist, at least until you are more up to speed with how to manage the financial side of a letting business.

Hope this helps

Holly

JimmyTheWig

decker27 wrote: »

Thanks holly, I am fine with creating a excel spreadsheet but I wanted an example so I knew I had covered all my outgoings*, before working it against my incomings to work out revenue

* Ground rent, service charge, council tax, managed service fees, etc

Were you wanting to do this from a tax point of view, or were you wanting to do it from an "is it worth it for me" point of view?