The average BTLer has a 21% mortgage and 500% rental cover at 5%

Graham_Devon

I have to say, I don't really think the averages, worked out in the way the OP has done really tells us all that much.

It certainly doesn't tell us that BTL is somehow safe, or, indeed, unsafe. It's merely a figure.

Theres nothing to compare this figure against to allow us to decide whether such a number is healthy or not.

Secondly, the number simply looks at an average. When it comes to distressed mortgages, the averages don't matter, what matters is the spread.

In terms of mortgage lending and looking at these averages, you'd have to exclude all those houses that are owned outright. Otherwise you are including BTL properties which have no mortgage in the LTV calculation, which muddies the picture somewhat.

steampowered

There are plenty of BTLs out there with 100% equity. Lots of people have an extra property or two and are perfectly happy to just receive the income on that without trying to acquire more properties.

This affects the average figures. There are plenty of landlords out there who take the maximum BTL mortgages they can get.

As with all types of investment, not just property, maxing out the amount of debt you use will make you more money if everything goes well - i.e. you don't have long rental voids, interest rates remain low and property prices increase. Obviously you can start running into severe difficulties if you have tenant issues, interest rates rise or property prices drop.

Blacklight

michaels wrote: »

In other shock news the people on the average income can't afford to purchase houses at the average price in many parts of the country.

By extension you therefore believe that incredibly poor people who live in absolute poverty (defined as the lack of sufficient resources with which to meet basic needs), should still be perfectly able to purchase the lowest price houses?

What an absolutely bizarre concept.

westernpromise

cells wrote: »

only upto the inheritance tax threshold which at £650k minus your own home minus another other bits of savings/assets does not leave a lot (if anything) for mr grim reaper paying CGT

For most landlords its going to be 40% IHT or 28% CGT

In the worst case it would be both. If you sell you're looking at 28% CGT, and costs of sale, and another 40% IHT on the cash left, and then if your heirs decide to get back into property, penalty rates of stamp duty on top of all that.

Alternatively you just never sell and then it's no CGT, no transaction costs, no stamp duty to re-enter the market and just IHT, but based on a valuation as there was no sale.The valuation price is thus to a degree negotiable with HMRC in a way an actual sale is not.

Chuck in the opportunity to remortgage the property, gift the cash tax-free to your heirs and then deduct these extra borrowings from the sum exposed to IHT, and it becomes very difficult to know why anyone with family to pass money to would ever sell a property.

It is important to think over longer spans than just your own lifetime.

wotsthat

cells wrote: »

only upto the inheritance tax threshold which at £650k minus your own home minus another other bits of savings/assets does not leave a lot (if anything) for mr grim reaper paying CGT

For most landlords its going to be 40% IHT or 28% CGT

It's not an either or. For most landlords (with a plan to exit via selling) it's 28% CGT AND 40% IHT on the rest.

If I sold a £1m house with a 50% gain today I'd be on the sharp end of CGT £135000 tax although I probably underestimated the costs I could offset. That leaves me with £865k.

Pop my clogs tomorrow and assuming I've already used up IHT allowance there's another £346k tax to pay. From a £1m house my kids get £519k to share between them.

Pop my clogs having not sold the house and there's IHT of £400k to pay so the kids get £600k to share out.

I've not thought about the impact of these two options on portfolios/ estates of different sizes but it looks to me as if Mr Reaper benefits if the typical landlord (one or two properties) most if they sell up and then slip off the dish.

If the CGT route is taken it should probably be accompanied by a spending/ lifetime gifting plan to immediately set to work on reducing future IHT.

Conrad

A new client enquirer is in front of me.....


She has a house and large mortgage


She literally thinks I'm crazy as I just asked her about tax - she's never paid anything and has no Accountan t despite owning a seemingly prospering manufacturing business


Fromm eastern Europe

wotsthat

Conrad wrote: »

A new client enquirer is in front of me.....

She has a house and large mortgage

She literally thinks I'm crazy as I just asked her about tax - she's never paid anything and has no Accountan t despite owning a seemingly prospering manufacturing business

Fromm eastern Europe

Report someone to HM Revenue and Customs (HMRC) if you think they’re evading tax.

Don’t try to find out more about the tax evasion or let anyone know you’re making a report.

For example, they might be:

- not telling HMRC about tax they owe (eg on business profits)
- keeping business ‘off the books’ by dealing in cash and not giving receipts
- hiding money, shares or other assets in an offshore bank account (‘offshore tax evasion’)

Tax Evasion Hotline
Telephone: 0800 788 887

cells

westernpromise wrote: »

In the worst case it would be both. If you sell you're looking at 28% CGT, and costs of sale, and another 40% IHT on the cash left, and then if your heirs decide to get back into property, penalty rates of stamp duty on top of all that.

It does not have to be a sale you can gift the property to the kids if you/they want property rather than cash. Gifting also avoids the stamp duty and much of the legal work will be reduced. There is the 7 year risk but you can insure against that with additional life cover for that period.

If a person dies with property how does the legals/transfer work?

Alternatively you just never sell and then it's no CGT, no transaction costs, no stamp duty to re-enter the market and just IHT, but based on a valuation as there was no sale.The valuation price is thus to a degree negotiable with HMRC in a way an actual sale is not.

40% inheritence tax is quite a lot. Of course if you are at or below the £1m mark (2020 threshold) then its better to hold and avoid the CGT but if you are over the £1m mark it might be worth gifting before you die and paying the 28% CGT rather than the 40% IHT.

Also the CGT is just on the gain while the IHT can be on the whole lot. eg imagine you buy for £100k and its worth £200k by the time you die and you paid the mortgage off while you owned it. The CGT is the £100k gain minus the costs minus your and your spouse annual CGT free threshold and then 28% on that. So effectively ~£21k tax. Whereas if you held it on death you would be looking at £80k tax.

Chuck in the opportunity to remortgage the property, gift the cash tax-free to your heirs and then deduct these extra borrowings from the sum exposed to IHT, and it becomes very difficult to know why anyone with family to pass money to would ever sell a property.

yes you can remortgage and gift the cash if that option is available

you could potentially gift your main residence and pay nothing and remove it from your estate and then move into one of your ex-rentals.

it all depends on how much you have. If you had £100m in sure there must be a better option than maxing out towards 60% LTV and exposing £40m to IHT @40%

You wouldnt really be able to go over 60% LTV as you have 75% LTV but need to wait 7 years in which case its gone up in value somewhat and the LTV down.

Also interestingly if the aim is to go down the IHT road it surely makes sense to skip generations as each generation needs to pay this 40%

It is important to think over longer spans than just your own lifetime.

the great-grand-kids of the year 2100 will all be robots living inside computers where everything costs zero

Conrad

wotsthat wrote: »

Tax Evasion Hotline
Telephone: 0800 788 887

I've done so before, nothing ever happens. Reported several kebab houses for rampant tax abuse, nothing happens. It's the 'turn a blind eye' Rotherham effect no doubt.

cells

wotsthat wrote: »

It's not an either or. For most landlords (with a plan to exit via selling) it's 28% CGT AND 40% IHT on the rest.

If I sold a £1m house with a 50% gain today I'd be on the sharp end of CGT £135000 tax although I probably underestimated the costs I could offset. That leaves me with £865k.

Pop my clogs tomorrow and assuming I've already used up IHT allowance there's another £346k tax to pay. From a £1m house my kids get £519k to share between them.

Pop my clogs having not sold the house and there's IHT of £400k to pay so the kids get £600k to share out.

I've not thought about the impact of these two options on portfolios/ estates of different sizes but it looks to me as if Mr Reaper benefits if the typical landlord (one or two properties) most if they sell up and then slip off the dish.

If the CGT route is taken it should probably be accompanied by a spending/ lifetime gifting plan to immediately set to work on reducing future IHT.

You can insure your own death usually for quite modest sums. eg it costs about £2,200 to cover £400k for a 50 year old man for 7 years

If you have a £1m house no mortgage you purchased for £500k if you gift it to the child you will pay ~£134k for CGT. If you die a month later you will be hit with a £400k CGT bill but your life insurance will cover that. So you effectively pay £134k + 2k for the life insurance cover = £136k

If you had not transferred it and died a month later you would be hit with a £400k IHT

So £400k vs £136k

You might be able to remortgage it assuming the banks are willing to say 75% LTV. Gift the £750k and cover it with the £2k insurance. In which case you would be hit for 40% of 250k = £100k


So of the three methods £100k vs £136k vs £400k

Just IHT looks the worst, doing the 75% LTV gifting looks the best but I am not sure how easy this would be in practice, gifting and paying the CGT looks a close second best.

Of course this is in this example using these numbers it might be better/worse using actual numbers for each actual individuals affairs