Factors to include in the plan..

atush

But they might, depending on where they are, already have gains in excess of the CGT band?

In which case they would need it n joint names. But if married can put in hers if they keep it?

kidmugsy

atush wrote: »

But they might, depending on where they are, already have gains in excess of the CGT band?

True, but it might also be an advantage if the gain is modest to realise it now, free of CGT. Come to think of it, if the property is of modest value with modest increase in valuation, you could presumably pass it to-and-fro occasionally, taking out tax-free capital gains each time.

TH1878

adam81, check out Truth Lite here http://www.prestwood-software.com/prestwoodonline/

It's a cut down version of the sophisticated financial planning software that many advisers use - but offered for free.

I've not used it as we have the full software but I'm sure it will do exactly what you need - the full software is extremely comprehensive and caters for the most complex financial models.

SpeedSouth

Cheers Guys,

Loads of good and links I'll spend some time looking at over the next week or so.

To answer some of the questions:-

Mortgage 1 @1.99% - Joint Names, Family Home - Out standing £72k
Repayment. £479 a month (for the past 4 years since owning it we have been OP'ing but have stopped this now in favour of pension payments and S&S ISA.

Mortgage 2 @2.49% - Rental, Missus Name only, Out standing £120k value £195k??
Interest Only, £245 a month. £650 rent per month (pre tax). This will become tax free earning soon when she quits work.

So my understanding of the yield calc is that is 4.1% before tax? However she paid £150k for it but I guess that is not factored? That breaks the CGT bracket I suspect?

Been very lucky and never missed a month rent in 4 years since she moved out.

At present given the increase in capital and what I think is a fairly good yield??? It makes sense to keep do you think?

Salary £40k, so after tax gives me 10k headroom I guess which has accounted for OP and saving cash for house works in the past.. Now it's pensions, investements and making up the shortfall when missus quits part time work.

atush

So if the OH is giving up work and is a non tax payer, putting the house rental and any other tax exposed income is wise.

But you do need to switch into joint names before selling ( to get 2x CGT). and consider putting some money into a pension for the OH even if not working.

kidmugsy

adam81 wrote: »

Mortgage 2 @2.49% - Rental, Missus Name only, Out standing £120k value £195k??
Interest Only, £245 a month. £650 rent per month (pre tax). This will become tax free earning soon when she quits work.

You've certainly got that in the right name at the moment.

adam81 wrote: »

However she paid £150k for it but I guess that is not factored? That breaks the CGT bracket I suspect?

If she sold now at £195k she'd make a gain of £45k less allowed expenses. (She should keep receipts for all work done on the property, costs of buying it, and eventually selling it.) So that's probably over the CGT allowance of £11k.

adam81 wrote: »

At present given the increase in capital and what I think is a fairly good yield??? It makes sense to keep do you think?

I'd reckon the yield as a ratio of annual profit (ca £4800) to her equity in the property (i.e. what she'd receive net, on selling it) of approx £75k. So ca 6.4% p.a. Tax-free that's nice.

Whether it make sense to keep it depends on the future not the past, but short of having a crystal ball ... The downside is that it's a big lump of risk - illiquid, indivisible, undiversified, ... The upside is that it's been a profitable business so far, and you hope also to make capital gains on it. Have you enough free capital to restore the house if some lousy tenant damages it badly?

P.S. I should have said "illiquid, indivisible, undiversified, and geared". So it may be the riskiest investment you've got, a fact hidden by its familiarity.

atush

I calculate yield as the rent income/price of property to you, not the equity in it. this is gross before tax or interest.

SpeedSouth

So calculating the yield atush you'd do on the £152k paid or the £195k it's currently worth?

Kidmugsy makes sense too I suppose as I am receiving the 6.4% on the amount I have to invest, but from what I've read usually the yield is based on the value of property at any given time?

At present she receives income so 2 questions here.

1. If we add me to the house to minimise CGT, would the time we do this make any difference? Would I be liable for any GCT on previous increase in value, or would my CGT be calculated only from the time at which I "bought" into the house?

2. Rental income, if I am on the deeds I assume even if the money is paid into her account I'd be liable for tax on half the income?

Going forward will sort her a SIPP. In the interest of diversification here I guess it would not really make sense to use a Vanguard LS fund when I am using this currently for S&S ISA? I've recently opened a LS60 but this is also thinking of large expenses for kids later down the line so 12-15 years.

Given the time scales I'd look at the LS80 for her pension (at least to begin with) as it will have 25+ years.

kidmugsy

atush wrote: »

I calculate yield as the rent income/price of property to you, not the equity in it. this is gross before tax or interest.

Why? If you are comparing one potential investment with another then it's the amount of capital you'll release by selling that matters.

kidmugsy

adam81 wrote: »

from what I've read usually the yield is based on the value of property at any given time?

My usual rule in life is that if what is usually done is not suited to your purpose, don't copy it.