Looking to get into Buy to Let

PaulSMallinson

Thanks, some good reading there, and helpful too. I apologise for not doing the search myself initially!

PaulSMallinson

agrinnall wrote: »

I'm sure G_M will post his links at some point, but one thing to consider in the meantime is your desire to take out a repayment mortgage. I'm not sure whether lenders offer these on Buy to Let properties anyway, but even if they do it may not be a good idea. The reason for this is that you can only claim as an expense against your letting profits the interest element of mortgage payments, so if you have a repayment mortgage the capital payments are not allowable expenses. This is one reason why most BTLs are purchased using an interest only mortgage (as well as keeping the repayment costs lower).

So if I understand you correctly.

To work out my profits (for tax purposes) I take the income (rent) and take away only interest part of the mortgage payments. Hence we would end up being liable for tax on all the rental income minus the interest on the mortgage. But would still have to pay the repayment part of the mortgage obviously, and you are saying that because a large part of the rental income is being taxed, there may not be enough rental income leftover to cover the mortgage payments?

I was hoping to take advantage of my Wife's tax code so as not to have to pay too much tax anyway (she does not currently work) so hopefully that wouldn't be an issue for me? But I hadn't realised that we could not deduct the full mortgage repayments from the rent before calculating the rent, so thanks for the info.

PaulSMallinson

tom9980 wrote: »

Are you aware that you will have to pay extra stamp duty?

Are you willing to self manage the property? Giving an agent 10% of your income seems stupid to me.

Do you both have adequate pensions, investments and 6 months expenses in cash savings? Ideally property should be less than 25% of your net wealth.

Are you aware of the huge amounts of rules and regulations you must follow while being a landlord? For instance getting the deposit protected can result in a 3x penalty for doing something as simple as forgetting to print some documents and resend them when a tenancy is renewed despite the deposit being protected.

Personally I think the learning curve of all this regulation is too much a risk now there can only be more regulation and tax on the way.

You can also see that confidence in the housing market has slowed with transactions low, it seems house prices will stagnate or maybe reduce over the next 5 years.

Have you worked out the yields on potential investments?

Yes, I am aware that buying a second property incurs additional rates on stamp duty, and yes, I would prefer to manage myself, I don't like the idea of a letting agent taking 10% of the rent, I don't think that id good value for money for what they do, and I have enough spare time to be able to do it myself.

My wife doesn't have a pension, but I have a good company pension. I have several investments in place through my work, in the guise of various share saving schemes, most of which I cannot touch at present (and the one I can would be cashed in to pay the deposit on the rental) but could be cashed in readily in times of financial hardship.

I must admit I am not fully aware of all rules and regulations of being a landlord, but was planning on receiving help from a letting agent (and a accountant friend) in setting a rental up and finding a tenant, but then managing myself once set up.

I have worked out yield on a potential purchase to be in the region of 8-12%, which from what I have read is a good return.

Edit: Having done some more reading and research, I now realise I would need a bigger deposit than first thought, and probably have to pay a higher interest rate, so now think the yield would be nearer 6%. Not quite so good.

PaulSMallinson

Pixie5740 wrote: »

Threads within the last week started by would-be landlords.

Enjoy

Thanks, some good reading there, and helpful too. I apologise for not doing the search myself initially!

ognum

I assume that your name will be on the mortgage as you are the person who's income the mortgage will be based on.

You therefore have to own the Property, if you own the property HMRC tax you.

00ec25

PaulSMallinson wrote: »

So if I understand you correctly.

To work out my profits (for tax purposes) I take the income (rent) and take away only interest part of the mortgage payments. Hence we would end up being liable for tax on all the rental income minus the interest on the mortgage. But would still have to pay the repayment part of the mortgage obviously, and you are saying that because a large part of the rental income is being taxed, there may not be enough rental income leftover to cover the mortgage payments?

I was hoping to take advantage of my Wife's tax code so as not to have to pay too much tax anyway (she does not currently work) so hopefully that wouldn't be an issue for me? But I hadn't realised that we could not deduct the full mortgage repayments from the rent before calculating the rent, so thanks for the info.

LOL, the only post you haven't quoted and replied to is mine in which I showed you that what you have written above re tax is wrong

your wife (not you) would take the rent income
your wife would claim any non mortgage costs to arrive at her taxable profit
your wife would then claim the interest element of the mortgage as tax relief
your wife would be left with the post tax profits

if she takes a repayment mortgage, rather than an interest only mortgage, the capital repayment element is not a figure she can claim against her tax. By definition the capital repayment is an increase in her wealth so does not get tax relief !

read the guide:
https://www.gov.uk/renting-out-a-property

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

saajan_12

PaulSMallinson wrote: »

I was hoping to take advantage of my Wife's tax code so as not to have to pay too much tax anyway (she does not currently work) so hopefully that wouldn't be an issue for me?

But then your wife would need to own the property.. can she get a mortgage alone given she doesn't work?

PaulSMallinson

00ec25 wrote: »

LOL, the only post you haven't quoted and replied to is mine in which I showed you that what you have written above re tax is wrong

your wife (not you) would take the rent income
your wife would claim any non mortgage costs to arrive at her taxable profit
your wife would then claim the interest element of the mortgage as tax relief
your wife would be left with the post tax profits

if she takes a repayment mortgage, rather than an interest only mortgage, the capital repayment element is not a figure she can claim against her tax. By definition the capital repayment is an increase in her wealth so does not get tax relief !

read the guide:

Apologies for that, and thanks for taking the time to reply.

Pixie5740

You could jointly buy the property with your wife and own it as tenants in common with a 99:1 split.

Crashy_Time

https://abodeltd.co.uk/section-24/