Buying A Second Home

holly876dog

Hello,


Not posted in a while. I need some help on a decision to either sell the current home or rent it out. I would really appreciate some guidance on rules/tax/landlord advice.


We have put in an offer for a house but we are unsure if renting our current house is better than selling. Here are a few details.


Current house - 200K. No mortgage owed as paid it off thanks to MSE for showing me benefit of overpayments!!!! Rental value ca 750 pcm


New house - 300K. Putting 100K down as deposit. Need ca 200K mortgage.


1. Which property should/can we mortgage, the current one & get BTL (higher int rate I presume) or raise mortgage on new house. Would this still be classed as BTL??


2. Tax.....SD rules change for 2nd homes in April so we will be hammered so should we put current home into single name now(currently joint ownership)


3. If we do 2 option then we couldn't raise 200K mortgage on single income alone therefore can we put current home into our child's name (10 y/o)? Is it ethical to do this??


4.
Tax situation. As we own our current home would it be still classed as BTL if mortgaged new house?


Putting it into childs name would the 750 pcm rental still be liable for tax?


Can we put current home into single name but still have them on new house (so we can raise mortgage). would this be classed as second home?


Sorry for the long message but if anyone else has faced this situation I would dearly love to hear your experience & any tips/advice etc. We would be first time landlords so we are novices to say the least (gulp).


Thank you for reading xxx.

MrJB

1. I personally would have mortgage on new property - by the sounds of things the original property wouldn't yield a good enough mortgage as you'd need a LTV of around 75% - circa £150k which would leave you short. You will probably get better rates on your primary residence.

2. irrelevant as follows: -

3&4 Children under 18 cannot own property in the UK.

My understanding is, if you sell property 1, you'd be able to buy property 2 mortgage free - for me personally that would be preferable.

holly876dog

Thanks for you reply, much appreciated.


Could we put our current home in 'trust'. This would eventually go to our only child anyway?


If we did this would it then allow both of us to be able to be joint owners on new property and hence be able to raise the 200K mortgage?


Many Thanks

MrJB

I'm no expert on trusts but the costs associated with administering the trust may make it an unviable proposition. Who would the beneficiary be? you and your husband and children? just children? Whilst the trust would provide the child/children income the asset will be owned by the trust and if it is ever passed over to the child CGT may fall due.

Another option is to look at transferring the property into a property investment company, as obviously the limited company is a different entity - the company would then own the property. Obviously this will mean you can earn any income through shares - but again there is going to be administrative costs which may preclude this option - I'm not sure on the ins and outs of entrepreneurs relief for your children if you wanted to gift shares to them.

In truth - I would seek professional advice from an accountant!

booksurr

holly876dog wrote: »

Thanks for you reply, much appreciated.

Could we put our current home in 'trust'. This would eventually go to our only child anyway?

If we did this would it then allow both of us to be able to be joint owners on new property and hence be able to raise the 200K mortgage?

a forum such as this is not the place to ask about the very wide implications of "trusts" as no one competent to advise on them will do so on a place like this

the lay person has heard the word "trust" but has no idea what they actually mean and how tax rules have been altered to close the loopholes the person in the street thinks a "trust" protects them from - go see a qualified solicitor experienced in trusts and pay for professional advice

1. if you mortgage the BTL and spend the money on buying the new marital home then the interest element of the mortgage would be allowable up to the value of the BTL property at the date it was first let. Technically called "withdrawing capital" from the rental business

If you mortgage the residential property then the interest is not allowable as the loan relates to a non business activity - buying a home.

2, 3 makes this a non starter

3 minors cannot own property in their own names. The trust will be in your name until they reach majority thus defeating your attempt at tax evading

4 No. if it is not mortgaged it is simply a let property so is not being bought to let because it is already owned outright. That does not mean you won't be LL nor that you can escape the legal responsibilities of so being. BTL is a method of financing, not a name of a letting business