Considering My Options

Diver2

Hello

I am looking for some advice what my options around my next housing move might be.

I am married and own a home worth around £300K, I have an outstanding mortgage of around £85K. We have been saving to move and have similar sum saved to help us move. I bought this home before we married and it is currently in my name only.

We are however considering whether to convert this current home to a Buy to Let. The plan being that this would wash it's face for now and in due course provide a retirement income.

My question is what are we best off doing for tax efficiency purposes? I am a higher rate taxpayer, whilst my wife is a basic rate taxpayer.

I am concerned about both the SDLT involved in buying the new home and also the level of tax that could possibly be due on any rental income from the BTL.

So the questions are:

1) Since the new home will be our only primary residence, will the higher levels of SDLT still be applicable? I think that these levels do not apply if you already own a BTL before buying a new primary residence, but not sure about the situation where you effecting creating one at the same time as purchasing a primary residence.

2) Can I transfer ownership of the existing house to my wife, apply for a mortgage on any new house in my sole name to avoid paying the higher SDLT? i.e. I would not own another property.

3) If we went ahead with the BTL option, could I transfer a large proportion of the existing property to my wife and then she would receive the lions share of the rental income, thus avoiding the higher tax charges that would be levied on a higher rate taxpayer with a BLT?

4) Would my wife any problem with re-raising the £85K we've saved via a BTL mortgage (I've checked and the rental income should permit this level of borrowing)? This would be used as the deposit on the new place - is this type of use of funds OK?

Any thoughts or advice welcome!

Kind Regards

D2

Slithery

Your going to have to pay the additional SDLT as a married couple is counted as one unit for SDLT purposes. It doesn't matter whether it's in your name or hers, you currently own one property and will own two at the end of the transaction - therefore extra SDLT.

Cakeguts

There is no point in doing anymore thinking on buy to let properties until you have done some market research. People tend to assume that because they like a property to buy and live in a tenant will like it to rent. It doesn't always work like this. When you buy a property you are more likely to make compromises than a tenant will. If a property is difficult to let you don't get the best tenants. If you don't get the best tenants you could get massive problems with people who don't pay the rent or who damage the property.

You say that the rent will cover the mortgage but have you allowed for being able to pay two mortgages should the buy to let property be vacant for any length of time or have a tenant that doesn't pay the rent. If the rent isn't being paid you still have to pay the mortgage and pay for repairs.

Generally it is better if you want to get into the letting property business to buy a property that gives you the best chance of doing that.

AnotherJoe

Why BTL as opposed to other investments ?

As a higher rate taxpayer you could feed some of that equity into your pension getting 40% uplift and sheltering your gains from tax unlike a house, without taking the SDLT hit. Also much more hands off. And you could buy a better house to live in.

Amd as said, if you do decide to go into BTL why would this property be the best one to let out ? Perhaps a couple of flats would provide higher income ?

nate1286

Diver2, have you considered seeing an IFA or an IMA for your options? I have a BTL and a residential mortgage and didnt have a clue. but went through searchandquote.co.uk who was able to help me with a good deal and explain the ins and outs. hope that helps

tom9980

I would expect the yield on that 300k property is pretty poor, the property I own of that value would give a miserly 4% before expenses if I rented it out. It makes no financial sense given the burden of extra stamp duty, being a higher rate tax payer adversely affected by the tax changes and all of the legal obligations of beng a landlord.

Your current plan needs a lot more research and seems to be a non starter to me.

AnotherJoe

Yep, if you did go into BTL you'd be better advised to buy your next house first, selling current one (so no SDLT) then use left over money to buy a property purposely for letting purposes which will cost less than your new house so SDLT will be much less this way round. As said you cannot evade it.

And as you ask a BTL should be in your wife's name to maximise profit. Though the SDLT will likely wipe out several years worth of profit even so.

This is all aside the fact that money you put into a pension gets a 40% uplift so unless you are already maxing out your pension that will have a much better return, which was your original question, what's best for tax efficiency. This is all aside the hassle and risk of being a landlord.

Diver2

Thanks for the feedback everyone, much appreciated. I am comfortable that the house I have would rent ok, it's in relatively popular rental area in a desirable town. Rentals on the same estate don't hang around for long.

However, you all make great points and there is clearly more thinking for me to do! So I will go away and do this.

Thanks

D2

saajan_12

Others have covered whether BTL is a good idea in general vs other investments, which I think you still need to consider. However in response to your questions:

Diver2 wrote: »

1) Since the new home will be our only primary residence, will the higher levels of SDLT still be applicable? I think that these levels do not apply if you already own a BTL before buying a new primary residence, but not sure about the situation where you effecting creating one at the same time as purchasing a primary residence.
Yes, higher SDLT would apply as you will be starting with one and ending up with two properties without disposing of your primary residence. You may get a refund of the 3% extra if you sell the old place within 3 years.

2) Can I transfer ownership of the existing house to my wife, apply for a mortgage on any new house in my sole name to avoid paying the higher SDLT? i.e. I would not own another property.
A married couple is treated as one unit re primary residences, so you would still be liable for the higher SDLT.

3) If we went ahead with the BTL option, could I transfer a large proportion of the existing property to my wife and then she would receive the lions share of the rental income, thus avoiding the higher tax charges that would be levied on a higher rate taxpayer with a BLT?
Not sure about any higher tax charges with a BLT sandwich But Yes, you could change the ownership to tenants in common 99/1 in your wife's favour, while you remain on the mortgage or even entirely in wife's name, if she can get any required mortgages in her name alone. The rent would then be taxed at her basic rate (upto the threshold at least).

4) Would my wife any problem with re-raising the £85K we've saved via a BTL mortgage (I've checked and the rental income should permit this level of borrowing)? This would be used as the deposit on the new place - is this type of use of funds OK?
Yes, I don't see why not. It's effectively a let to buy mortgage, but generally the same rules apply as a BTL.

The SDLT is not really negotiable without selling the current place. You may save some income tax on the rent by moving it into your wife's name. However note that when you do eventually sell the current place, you'll be liable for Capital Gains Tax on any increase in value for the months it wasn't your primary residence. There are several mitigators and allowances here, and you may be better off both owning the property to make use of both your CGT allowance (11k currently).

cashbackproblems

AnotherJoe wrote: »

Why BTL as opposed to other investments ?

As a higher rate taxpayer you could feed some of that equity into your pension getting 40% uplift and sheltering your gains from tax unlike a house, without taking the SDLT hit. Also much more hands off. And you could buy a better house to live in.

Amd as said, if you do decide to go into BTL why would this property be the best one to let out ? Perhaps a couple of flats would provide higher income ?

I would echo this, BTL is dead its not just the higher rate stamp duty but the extra tax on rental income (as a higher rate payer this would hit you more). Also there is the usual risks of bad tenants and other costs involved.


The pension top up is a good call for the tax relief, but it sounds like you need the equity for your next place