Buy to Let quick question

PierremontQuaker03

Do I need a tenant in place for a buy to let mortage? - I will be letting out my current home (on a BTL mortgage) and buying another residential property - I will be borrowing the 75% max I can from my current home.
Anyway, I dont want to let out my property straight away I want to live in it for a couple of months after the sale of the property I am purchasing - just so I can decorate and gradually move in - I dont mind subsiding paying the amount on the BTL mortgage payments at this time - I assume this is allowable as if I dont have a tenant I will be paying for it anyway - thanks

anselld

The mortgage co generally dont like you living there yourself on a BTL mortgage. Suggest you need to change your plans to move straight away and leave the BTL empty (on paper at least!).

armour

That's good advice.
The mortgage interest you will be racking up on the BTL without a tenant, will be allowable against profit (even in future years if you don't make a profit in this one).
Don't forget to:
a) inform the IR that your primary residence has changed.
b) get your current home (which you are about to let out) valued.
BTW, the higher the better with the valuation as it will reduce your capital gains tax liability if / when you sell it.

00ec25

armour wrote: »

That's good advice.
The mortgage interest you will be racking up on the BTL without a tenant, will be allowable against profit (even in future years if you don't make a profit in this one).

correct - provided it has ceased to be a residence available to the OP. The test of what is the "main" home is subjective and is down to the facts of the individual case. OP has expressly stated their intention is to continue residing in the "old" home therefore the mortgage costs do NOT count as pre letting expenditure since the OP would have had to pay them anyway as based on their intention to live on in the old place they actually own 2 "homes", not a home and a business premises ie. the costs are not wholly and exclusively related to the rental business
http://www.hmrc.gov.uk/manuals/pimmanual/pim2505.htm

armour wrote: »

Don't forget to:
a) inform the IR that your primary residence has changed.

relevant for CGT purposes but OP needs to establish the start date for the rental business therefore the old house is no longer their "residence"

armour wrote: »

b) get your current home (which you are about to let out) valued.
BTW, the higher the better with the valuation as it will reduce your capital gains tax liability if / when you sell it.

do not listen to this rubbish, it is dangerously wrong

CGT is calculated on the difference between ORIGINAL purchase cost and eventual sales price. A change of use has NO impact on the gain

pity some people don't research before posting on technical matters
http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

armour

Hi 00ec25.
You seem very sure about the capital gain aspect. Are you an accountant? My accountant advised me that CGT liability on a let property that was previously your main home is calculated on the increase in price from the time it was brought into letting until the time it is sold the capital appreciation during the time it was your main home being 'CGT free'

I certainly hope this the case as I have a house let out which was my main home from 1992 till 2010. From what you say, I'd be liable for CGT on the capital appreciation since 1992!

00ec25

armour wrote: »

Hi 00ec25.
You seem very sure about the capital gain aspect. Are you an accountant? My accountant advised me that CGT liability on a let property that was previously your main home is calculated on the increase in price from the time it was brought into letting until the time it is sold the capital appreciation during the time it was your main home being 'CGT free'

I certainly hope this the case as I have a house let out which was my main home from 1992 till 2010. From what you say, I'd be liable for CGT on the capital appreciation since 1992!

your accountant has correctly stated the facts but you have not understood the overall context, both he and I are correct but I can see how the wording has confused you. This sort of CGT question comes up approx weekly on here or the tax cutting board

your gain is the difference between the purchase price in 1992 and its eventual selling price. That gain builds up evenly over your entire ownership period, but you get exemption for the period it was your main home (plus the final 3 years of ownership) therefore that is why in his words the CGT liability applies to the let period but it is NOT based on the value at the start of the let period, please read the HMRC guide it is not rocket science (PS I am an accountant)

as a simplified example lets say you sell it in 2022 and the gain is 200k:
Total ownership period 30 years , you lived in it till 2010 ie 18 years, plus you also get the final 3 years exempt so total period 21 years
the CGT is
exempt amount: 200k x 21/30 = 140K
liable amount: 200k x 9/30 =60K

from the liable amount you also get to deduct your personal allowance £10.9k (per owner) plus you can also get lettings relief because it was once your home. That is worth up to another 40k max (per owner)

it is unusual for someone who has let out a property they lived in for a long time to end up paying CGT because of the size of the exemption and relief available

armour

Thanks for the comprehensive explanation 00ec25
It just so happens that the tenants I have had since 2010 have asked me for first refusal if I were to sell. I'm considering it.
I also let the property from 1997 - 2002, the rest of the time it was my main home.
From what you say, if I were to sell now the last 3 yrs being exempt, I would be liable for 5/21 x the capital gain. I would expect the capital gain to be around £165K over the 21 yrs.
Therefore:
5/21 x £165k = £39.3k - £10.9k = £28.4k x 40% = £11.4k tax bill.
BTW, feel free to shoot my maths down in flames.
I'm interested in this 'lettings relief'. Would you care to elaborate as to where this fits in?
So there really was no need to get the house valued as the most recent tenants moved in then?
Thanks once again, I appreciate your clarity.

00ec25

armour wrote: »

I certainly hope this the case as I have a house let out which was my main home from 1992 till 2010.

armour wrote: »

I also let the property from 1997 - 2002, the rest of the time it was my main home

let us hope that when your accountant does the calculation for you that you provide complete and accurate info, not the mixed bag you have posted so far...
have you read any of the links I posted ? if you had you could work this out yourself bearing in mind the calculation must be done in months not years and you had a period of absence which may or may not qualify for absence relief

1992 - 2013 = 21 years
main residence 1992 - 1997 plus 2002 - 2010 = 13 years plus final 3 (2010 - 2013)
gain 165k

less PRR exemption (13+3)/21 x 165 = 125

less letting relief, lower of:
a) PRR ie 125
b) gain during let period (excl final 3 years) (21-16)/21 x 165 = 39
c) maximum allowed 40

less personal allowance 10.9

net taxable gain: 165 - 125 - 39 - 10.9 = zero
no taxable gain
no CGT to pay at either 18% or 28% (not 40% - please read the links!)