Buy-to-let finance query

luckyfool

dunstonh wrote: »

Also, you dont pay capital gains tax on savings (or investments within an ISA) but you will on gains on the property and there will be no reliefs to reduce it anymore apart from your CGT allowance.

True, but my understanding of the new CGT regime is that it leads to a lower tax bill for all Higher Rate taxpayers, and all Basic rate taxpayer who don't keep the property for more than 6 years.

dunstonh

The CGT will reduce the bill for many but not all. The removal of the reliefs can over the long term hit harder than the reduction to 18%. I havent done any figures comparing but your 6 years would be a fair bet.

CGT is something that newbie buy to letters often forget to factor in (as well as the fact that they may own properties worth xyz but they are also in debt to a not too far off level as well!)

A_Nice_Englishman

I think if I was in the OP's position, I would put the money into a pension scheme and let others manage it rather than start a marginally profitable business in a field I knew nothing about.

If I felt residential property was a good thing to increase my exposure to I would buy a more expensive house to live in myself. At least that way I would have somewhere nicer to live and no CGT to worry about.

Dan_Collins_2

mountaindog wrote: »

I have virtually no pension to look forward to but have equity in my house and a small amount of savings (under 30K). I am proposing to buy an apartment and my IFA who I have only just met advises me to borrow all the money on my house enabling me to purchase the apartment outright. I have researched this a little and he assures me that doing it this way is as tax efficient as purchasing the apartment on a BTL mortgage. I would appreciate your views/help/suggestions as my head his hurting (a bit!!).
Thanks in anticipation.

Hi Mountaindog I see you have woken the anti property ppl! LOL just kidding before you all start!

Property in the long term is a good investment and if you can ride the rough times you will come out stronger, property always has and will.

A savings account at 6% is ok but the 20k will not have the same growth potential as the property. If you can afford to keep the property going if it isn't wiping its own feet then why not go for it. Research the market in that area and if your happy go for it. I would keep it away from the family home, if anything goes wrong you wont want to sell your home!

Flats are always going to be hit first if property prices fall but people will always need a place to live. The biggest problem I have with investors is that they do not realise how much it costs to maintina the property. I have two estate agent who run lettings and they spend most of the day chasing plumbers and other tradesmen because of things going wrong, make sure you can afford this and you will be fine.

luckyfool

A_Nice_Englishman wrote: »

If I felt residential property was a good thing to increase my exposure to I would buy a more expensive house to live in myself. At least that way I would have somewhere nicer to live and no CGT to worry about.

Yes, but your main residence isnt an investment, it's a liability. You are paying for the mortgage, and can only cash in any gains by selling up and then you have to buy somewhere else. The advantage of a buy to let is, a) it should be self supporting, b) it is an asset, if it's self supporting initially you should expect over time to be able to generate an income from it as the rent increases in the medium to long term and c) you benefit from capital appreciation over the long term as the property appreciates in value (which over the loooong term it almost certainly will). You also get the benefit (or disadvantage if prices fall and you sell up in the short term) of leveraging your investment. i.e. if your deposit is 20% then your any gains or losses are multiplied by 500%. i.e. for every 10% the price rises or falls, your original investment would increase or decrease by 50%. It's certainly by no means for everyone, and the market is not as attractive for buy to let landlords now as it was 5-10 years ago, but I do think if you are careful with the property you buy, your tenants, and make sure you have the finances to fall back on in the event of void periods then its a good option.

Again I would echo my earlier comment that I would strongly advise against solely relying on Buy to Let as your sole pension provision.

A_Nice_Englishman

Buying a property more expensive than you need can be regarded as an investment. You benefit from any rise in property prices and can realise the gain free of CGT by downsizing.

If you choose a suitable property you can gain tax-free income
by taking in a lodger under the rent-room scheme.