Advice on buy to let

booksurr

Yes times have changed and the criteria for a "normal" BTL mortgage these days means without an income of 25k you won't get one

see a specialist broker and find out if you need a plan B involving a property you can buy for cash.

Also as your current property will be flagged as having a BTL mortgage against it HMRC may well wonder why when you sell it you are not declaring it for capital gains tax. If they come calling and you say you only had "lodgers" the next question will be did you ever have more than one at the same time? If yes then you will need to do a CGT calculation given you expect to sell for 350k so must have a gain well over your tax free allowance

Blockz99

booksurr wrote: »

Yes times have changed and the criteria for a "normal" BTL mortgage these days means without an income of 25k you won't get one

see a specialist broker and find out if you need a plan B involving a property you can buy for cash.

Also as your current property will be flagged as having a BTL mortgage against it HMRC may well wonder why when you sell it you are not declaring it for capital gains tax. If they come calling and you say you only had "lodgers" the next question will be did you ever have more than one at the same time? If yes then you will need to do a CGT calculation given you expect to sell for 350k so must have a gain well over your tax free allowance

Thanks Booksurr -
I rang HMRC last week and explained my situation i.e that I live in my buy to let home . They said the if it was my prime domicile and only the property I owned then I would not pay CGT . They said that its not relevant how you pay for a second home either a BTL mortgage , cash etc .But if land registry showed that I owned more than one property I would pay CGT. I also asked about the lodgers I rented to . I explained that I had at most 2 lodgers at a time and there were long periods where there were no lodgers . They said that I can rent a room out for 4250 per year without paying tax. I never made that much for the rooms . I have bills in my name at my address going back 10 years and the council tax will show I lived here.

booksurr

Blockz99 wrote: »

Thanks Booksurr -
I rang HMRC last week and explained my situation i.e that I live in my buy to let home . They said the if it was my prime domicile and only the property I owned then I would not pay CGT . They said that its not relevant how you pay for a second home either a BTL mortgage , cash etc .But if land registry showed that I owned more than one property I would pay CGT. I also asked about the lodgers I rented to . I explained that I had at most 2 lodgers at a time and there were long periods where there were no lodgers .

as you wish to learn from your experience and be "legit" please appreciate that HMRC call centre staff have low level knowledge of a wide range of areas but no expertise to allow them to pick up on clues you give

as soon as you have more than one lodger at a time you lose main residence relief even if that is the only property you own
http://www.hmrc.gov.uk/manuals/cgmanual/CG64702.htm

however, you then get to claim letting relief instead. LR is capped at £40,000 so provided your gain is less than that plus your CGT personal allowance (currently 11,000) then your gain will be covered by relief and you will pay no tax. If your gain is bigger than 51,000 you would have to pay CGT on the excess.

Blockz99 wrote: »

They said that I can rent a room out for 4250 per year without paying tax. I never made that much for the rooms . I have bills in my name at my address going back 10 years and the council tax will show I lived here.

your income tax position is fine, if you received less than 4,250 in total per year from the total of all all the lodgers you had during the year then your income tax position is fine, no tax to pay. If you let each room for less than 4,250 but had 2 rooms in use then the annual income you got in total could be more than 4250 and you would have been evading tax

documentary evidence that you physically and actually lived there is important if you are challenged so hang on to that for a bit.

Blockz99

booksurr wrote: »

as you wish to learn from your experience and be "legit" please appreciate that HMRC call centre staff have low level knowledge of a wide range of areas but no expertise to allow them to pick up on clues you give

as soon as you have more than one lodger at a time you lose main residence relief even if that is the only property you own


however, you then get to claim letting relief instead. LR is capped at £40,000 so provided your gain is less than that plus your CGT personal allowance (currently 11,000) then your gain will be covered by relief and you will pay no tax. If your gain is bigger than 51,000 you would have to pay CGT on the excess.

your income tax position is fine, if you received less than 4,250 in total per year from the total of all all the lodgers you had during the year then your income tax position is fine, no tax to pay. If you let each room for less than 4,250 but had 2 rooms in use then the annual income you got in total could be more than 4250 and you would have been evading tax

documentary evidence that you physically and actually lived there is important if you are challenged so hang on to that for a bit.

Thanks again .
HMRC lady never mentioned 2 or more lodgers would mean I would be liable for CGT tax on my home but as you say they may not know all the rules and regulations. By "gain" you mean the profit on the house sale ? Are you saying that If I sold at a profit of 350K I would I then pay CGT on the 299k ( which would be the 350k minus the 51k letting relief plus my Personal allowance ) ? Sorry if I sound dumb on this .

One more question. Do you think HMRC would take into account the length of period that there were two lodgers in residence and accept tax pro rata for those periods . Over the 13 years the period I had two lodgers at the same time was approx 2 years . Or its it the case that once I have the second lodger I lose the exemption for always - would I get back any exemption for the lengthy period I had one lodger ?

Thanks for your patience with me .

pathtofreedom

Blockz99 wrote: »

. Been living on my savings over the past two years as I'm not entitled to any benefits being a home owner .

That's not quite true, there are a mix of means tested and not means tested benefits for sickness / disability depending on your circumstances. If you are running out of savings it might be worth looking into this again. You might qualify for mortgage interest payments for example, as well as esa and pip but with the btl mortgage you might have ruled yourself out of that. These won't help you get a new mortgage but at least it could increase your income, and keep your NI contributions being paid so it doesn't reduce your state pension later if you don't have enough years depending how far you are from retirement.

http://www.entitledto.co.uk/

pathtofreedom

What sort of buildings / contents insurance do you have as well thinking about it? As that might not be valid either.

It might be worth taking all your paper work down the the citizens advice and see if there is a way to get out of this situation, so that you know you are fully insured. especially if you have lodgers, and that the current mortgage provider won't just call in the mortgage one day if they suddenly realise you're living there if you shouldn't be.

Blockz99

I think my house insurance is ok as I've not had lodgers for 3 years . I plan to sell asap in next two months to get out of this situation - recovering from illness and with this stress about tax , mortgages and money is just not with it . I will seek advice from citizens advice about all this .
Thank you for your advice .

Blockz99

Thank you for the information . My savings will last until I sell in the next few months when I can downside and get rid of the stress . If I'm still not well enough to return to work after I have moved then I will see what I'm entitled to as regards benefits . It may sound silly and stupid but I've never had to deal with the benefits system and the thought of having to do so scares me . Yes I know that sounds pathetic but that's where I am at the moment .
Thank you for your help it's much appreciated

booksurr

Blockz99 wrote: »

One more question. Do you think HMRC would take into account the length of period that there were two lodgers in residence and accept tax pro rata for those periods . Over the 13 years the period I had two lodgers at the same time was approx 2 years . Or its it the case that once I have the second lodger I lose the exemption for always - would I get back any exemption for the lengthy period I had one lodger ?

Thanks for your patience with me .

you are of course supposed to SELF assess your own tax and are therefore expected to know more about tax than the HMRC call centre staff do !

yes the liable period is pro-rated between periods when you had no or only 1 lodger and those with 2 (or more)

as a simple example:
gross gain : selling price 350 - original purchase price 13 years ago say 200k = 150,000 gross gain ("profit")

had 2 lodgers for 6 months in year 5, and all of years 9&10. Total liable period = 2.5 years. Except as above had 1 lodger all the time from year 5 to date of sale meaning the exempt period = 13 years - 2.5 years = 10.5

private residence relief ("exempt gain"): 150 x 10.5/13 = £121,153

letting relief is lower of:
a) PRR £121,153
b) gain in let period: 150 x 2.5/13 = 28,847
c) max allowed 40,000

personal allowance 11,000

net taxable gain 150,000 - 121,153 - 28,847 - 11,000 = ZERO
no CGT to pay

real calculation should be done in months (or days) but not in whole years!

Pixie5740

The mortgage market has changed a lot since 2007. No income = no mortgage even for BTL to stop people circumventing affordability and using BTL to buy a property to live in themselves.

Even if it turns out the OP is entitled to some benefits it's unlikely it will be enough to for the residential mortgage required for the 1 bedroom basement flat and the BTL mortgage required for the 2 bedroom maisonette.

Using the £350k to purchase a home outright is probably the most realistic option whilst claiming whatever benefits the OP is entitled to as there is no shame in claiming benefits, they're there as a safety net for people.