Renting current house and buying a new one

vira1369

Hi all,


Newbie to the UK housing market trying some complex stuff - I would greatly appreciate your advice!



Me and my husband are joint owners of a house. But we now have to move to a different house as my commute to work is very very long. After considering all the non-financial matters, we think its best to buy a new house close to my work. So we are considering the following steps:


Step 1: Move the current house on to my husband's sole name
Step 2: Buy second house in my sole name
Step 3: Rent out the first house


My main question to the experts around is: under the new rental income taxation rules, I presume my husband can claim the 20% tax credit on the first house's mortgage payments. Is this correct?


Thanks in advance!

AnotherJoe

Step 2.1 Pay 3% extra SDLT on second house.

00ec25

as at attempt at DIY tax planning your idea is awful
you are married. It matters in tax terms

1. are you a higher rate taxpayer?
2. is your husband a higher rate taxpayer?

3. is the current house owned as tenants in common or as joint tenants?

4. who is (will be) liable for the mortgage on the current house, him only, or both of you? If him only, is the lender aware of the proposal to let the property, have they agreed to it?

5. your plan will result in considerable extra Capital Gains Tax being due when you sell the "current" house in the fullness of time

6. changing ownership to sole names will not evade the fact higher rate SDLT will be due on the purchase of the second home since both of you intend to occupy the property and therefore both have a beneficial interest in it if if only one of you is its legal owner

vira1369

Hi both, Thank you for the replies. Please see my response in-line to your queries.

00ec25 wrote: »

as at attempt at DIY tax planning your idea is awful
you are married. It matters in tax terms

1. are you a higher rate taxpayer?

YES

2. is your husband a higher rate taxpayer?
YES
3. is the current house owned as tenants in common or as joint tenants?
JOINT TENANTS
4. who is (will be) liable for the mortgage on the current house, him only, or both of you? If him only, is the lender aware of the proposal to let the property, have they agreed to it?
HIM ONLY - WORKING WITH LENDER ON THIS
5. your plan will result in considerable extra Capital Gains Tax being due when you sell the "current" house in the fullness of time
WE intend to rent the current house only for a year or two and then be back - so we understand that the tax treatment for these two years will be different when calculating CGT
6. changing ownership to sole names will not evade the fact higher rate SDLT will be due on the purchase of the second home since both of you intend to occupy the property and therefore both have a beneficial interest in it if if only one of you is its legal owner
OK. I had not considered that - will factor that into our calculations (if we buy a £300k house, it would then be £14,000 instead of £5,000. Right?). The reason we want to change ownership is to avoid buying on a buy-to-let basis where we have to pay 25% deposit.

Cakeguts

I hppe you can afford to pay two mortgages if your tenant stops paying rent or the house is difficult to let which is very likely because you haven't bought the property you want to let as a rental property you bought it to live in. Lots of houses that people buy to live in do not make successful rental properties.



The lowest hassle route for what you want to do is to rent a house in the new area for 2 years and then move back. That way if you find that you can't afford the rental and the mortgage on the owned house you can move quickly.

vira1369

Thank you, Cakeguts. We should be fine with paying two mortgages. The reason we are interested in buying another house is to avoid paying rent (which is really money down the drain) and also because I will be getting some help from my company to relocate which we want to use to invest in property. But if the numbers ultimately do not work out, then we will have no other go but to rent a house!

Pixie5740

vira1369 wrote: »

Thank you, Cakeguts. We should be fine with paying two mortgages. The reason we are interested in buying another house is to avoid paying rent (which is really money down the drain) and also because I will be getting some help from my company to relocate which we want to use to invest in property. But if the numbers ultimately do not work out, then we will have no other go but to rent a house!

What is SDLT, mortgage interest, solicitor's fees, surveys, etc then?

Slithery

vira1369 wrote: »

Renting current house and buying a new one

The first thing you need to do is get your terminology correct.

You won't be renting a house you'll be letting it out. Renting is when you pay someone else to live in their property.

gettingtheresometime

Of course renting first in the new area will allow you to make an informed choice about the area you want to buy in.

vira1369

Right got it - but too late to change the title!

vira1369

Pixie5740: You are right - it is. The plan is to balance it out to minimise the loss...