How does buying a 2nd home affect tax credits and benefits?

diymonkey

Hi everyone,

I've been thinking of buying a 2nd property to rent out and eventually pass it on to my kids. I was just wondering what benefits/tax credits are affected if someone owns a 2nd property?

How can I calculate it and does having a mortgage on either property make any difference to your benefits?

Housing_Benefit_Officer

Any equity in the property is treated as capital (difference between mortgage outstanding and market value).

Any rental income received is treated as income (minus mortgage payment and property related expenditure).

Londonsu

what benefits are you on?


I don't know about tax credit but if you are on income based benefits I would imagine that it would be nigh on impossible to get a mortgage and if you had the cash to buy outright then you would not be entitled to income based benefits anyway.


And quite rightly if you earned income from rents then any income based benefits could be reduced or stopped altogether.

diymonkey

Thank you for your replies.

I'm currently on working tax credit and child tax credit. I pay my council tax in full. I wanted to purchase a 2nd property as a buy to let for around £60k with about £50k on mortgage.

dori2o

diymonkey wrote: »

Thank you for your replies.

I'm currently on working tax credit and child tax credit. I pay my council tax in full. I wanted to purchase a 2nd property as a buy to let for around £60k with about £50k on mortgage.

The only thing that would affect your tax credits whilst in ownership of the property would be any profits from rental income, although as this comes under 'Other Income' for TC purposes then the first £300 of profit is disregarded (assuming you have no further 'other income' such as bank interest etc).

diymonkey

What about capital in the property?? Does that not affect the amount of working tax credits or child tax credits a person can get??

Also what expenses if any are you allowed to claim against??

dori2o

diymonkey wrote: »

What about capital in the property?? Does that not affect the amount of working tax credits or child tax credits a person can get??

Also what expenses if any are you allowed to claim against??

Neither Capital nor Capital Gains have any effect on Tax Credits.

Typical rental expenses may include things like Financial costs (interest on the mortgage/loan, mortgage fees, broker fees etc), insurance, repairs/ renewals (assuming the renewals are like for like), travel costs if you have to travel to the property, any legal costs, agents fees if you rent via a lettings agent, anything you pay for that would normally be the responsibility of the person living in the property (this could be council tax, energy, water, etc etc), cleaning costs if you have to have the property cleaned after tennants move out.

If you let the property as furnished then you can either claim the cost of repairs/renewals of the furnishings as and when required, OR, you can claim a 10% allowance for wear and tear. (this is either/or, not both)

See the guidance notes for the 'Property Income' section of the most recent Self Assessment form which can be located here
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/354379/sa105-notes.pdf

Don't forget that when you start to rent out a property you must inform HMRC within 3 months of starting so that they can update your records and send you a self assessment form if required.

diymonkey

Thank you very much dori2o for the extremely useful information. I really appreciate it.


Just to be clear, my main concern is how it affects my income and tax credits which you have brilliantly answered.

Now what about how much money you put towards the property as a deposit??

Also can you get any council tax discount or tax breaks for a 2nd property which maybe empty for a while and in between tenancies???

Lastly are there any other costs or tax/breaks that I should be aware of??

TattyG

Now you know about the tax credits, it might be worth jumping on to the housing board on MSE to get the rest of your questions answered - they might be better placed to help x Board is here - http://forums.moneysavingexpert.com/forumdisplay.php?f=16

xx

poppasmurf_bewdley

Just shows how ridiculous our benefits system is if someone who's receiving Working and Family Tax Credits from the Taxpayer can afford to go out and buy a second home.

Just saying.

Caz3121

diymonkey wrote: »

I wanted to purchase a 2nd property as a buy to let for around £60k with about £50k on mortgage.

BTLs need a higher deposit than a residential mortgage so you may need to increase your deposit