Advise Required

ScubaCollie

Hi All,

New to this forum and would be really grateful if somebody could please assist with some questions i have.
We have 75% of our mortgage paid on a property in Essex (worth around £350K), and looking to move to Scotland.
We would like to retain our existing property in Essex, in case we change our mind and would like to move back in the future.
We have a close cousin who is presently renting privately at the moment, and is really struggling, and we would like to help him, and we have therefore said to him that he can rent our property and so long as he covers the mortgage payments, and were thinking of remortgaging on an interest only buy to let, which would amount to around £200.00 per month, therefore his payment would cover the mortgage payment, and some bills, and we can then release a lot of equity from the property to put down on a new mortgage in Scotland.
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He would therefore be paying approx £400.00 rent to us per month (we could get around £1300.00 per month rent if we wasn't helping him!).

Can somebody please advise me on the following.

What Tax's would we be subject to if we buy a house in Scotland for around 350K?

I understand Scotland has a 2nd dwelling tax? Is this on top of stamp duty or is this the same thing as Stamp Duty?

And also some other tax LBBT?

If somebody could please let me know what tax we would be subject to paying then at least that would be a start....

Also, we would be subject to declaring the tax on the rental income, as mentioned above the rental income would be £400.00 per month, how much would we need to pay tax per year?

Also, when we come to sell the property in Essex, i understand we would need to pay Capital Gains Tax, how much would this likely cost?

We would really like to help him, but at the same time we need to know if this is going to make financial sense, or if we are going to be left with a bit tax bill and a loss in equity when we go to finally sell the property due to the capital gains tax?

G_M

ScubaCollie wrote: »

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He would therefore be paying approx £400.00 rent to us per month (we could get around £1300.00 per month rent if we wasn't helping him!).
See below for information on becoming a landlord in England.

Can somebody please advise me on the following.

What Tax's would we be subject to if we buy a house in Scotland for around 350K? LBTT - see below

I understand Scotland has a 2nd dwelling tax? Is this on top of stamp duty or is this the same thing as Stamp Duty? LBTT is the Scottish Stamp Duty. The 2nd dwelling tax is on top.

And also some other tax LBBT? see above

If somebody could please let me know what tax we would be subject to paying then at least that would be a start.... LBTT + 2nd dwelling tax - see below

Also, we would be subject to declaring the tax on the rental income, as mentioned above the rental income would be £400.00 per month, how much would we need to pay tax per year? You'd need to complete a self assessment tax return. The amount due will depend on various factors, your tax level, allowances etc Use google for rules or buy a (recent) book on BTL/property investment, or see an accountant.

Also, when we come to sell the property in Essex, i understand we would need to pay Capital Gains Tax, how much would this likely cost?
Depends on how long it was your main residence, ow long ago at timeof asle, how long it was rented out etc. See link below.


We would really like to help him, but at the same time we need to know if this is going to make financial sense, or if we are going to be left with a bit tax bill and a loss in equity when we go to finally sell the property due to the capital gains tax?

You need to do a lot of financial learning and draw up a proper budget. Also ned to take on board exactly what is involved in being a landlord.

* LBTT Scotland


* New landlords (1):advice & information :see links in next post

* New landlords (2): Essential links for further information


* Capital Gains Tax



* property investment example book - there are many others

davidmcn

"Stamp Duty" was abolished throughout the UK in 2003 and replaced with Stamp Duty Land Tax.

In Scotland, that was devolved in 2015 and replaced with Land and Buildings Transaction Tax.

Calculator here: https://www.revenue.scot/land-buildings-transaction-tax/tax-calculator/lbtt-property-transactions-calculator

You'll need to select "yes" for Additional Dwelling Supplement because you own another property.

Capital Gains Tax would depend on the relevant before/after values and whatever the rules are at the time.

AdrianC

ScubaCollie wrote: »

We have 75% of our mortgage paid on a property in Essex (worth around £350K)

How much do you still owe?

and looking to move to Scotland

How much are you looking to spend?

We would like to retain our existing property in Essex, in case we change our mind and would like to move back in the future.
We have a close cousin who is presently renting privately at the moment, and is really struggling, and we would like to help him, and we have therefore said to him that he can rent our property and so long as he covers the mortgage payments, and were thinking of remortgaging on an interest only buy to let, which would amount to around £200.00 per month, therefore his payment would cover the mortgage payment, and some bills, and we can then release a lot of equity from the property to put down on a new mortgage in Scotland.

Well, OK, but bear in mind that BtL lenders don't tend to like close family members on artificially-cheap non-commercial tenancies.

He would therefore be paying approx £400.00 rent to us per month (we could get around £1300.00 per month rent if we wasn't helping him!).

You still need to declare the £400 rental income on your self-assessment tax return.

What Tax's would we be subject to if we buy a house in Scotland for around 350K?

I understand Scotland has a 2nd dwelling tax? Is this on top of stamp duty or is this the same thing as Stamp Duty?

And also some other tax LBBT?

LBBT is the Scottish equivalent to SDLT. As a second property, you'd be looking at +4% instead of +3%.

Also, we would be subject to declaring the tax on the rental income, as mentioned above the rental income would be £400.00 per month, how much would we need to pay tax per year?

Depends entirely on how much you offset against that income in allowable expenses, and what your income tax rate is.

Also, when we come to sell the property in Essex, i understand we would need to pay Capital Gains Tax, how much would this likely cost?

Depends entirely on how long between you moving out and selling, and how much it increases by value in that time.

We would really like to help him, but at the same time we need to know if this is going to make financial sense, or if we are going to be left with a bit tax bill and a loss in equity when we go to finally sell the property due to the capital gains tax?

Apart from anything else, you're talking about subsidising his accommodation by £900/month. That's very generous of you...

hazyjo

ScubaCollie wrote: »

We have a close cousin who is presently renting privately at the moment, and is really struggling, and we would like to help him, and we have therefore said to him that he can rent our property and so long as he covers the mortgage payments, and were thinking of remortgaging on an interest only buy to let, which would amount to around £200.00 per month, therefore his payment would cover the mortgage payment, and some bills, and we can then release a lot of equity from the property to put down on a new mortgage in Scotland.
.
He would therefore be paying approx £400.00 rent to us per month (we could get around £1300.00 per month rent if we wasn't helping him!).

It is always a very bad idea to let a property to someone who is family or close to you. Firstly, it may not be permitted under your mortgage and secondly, would you be prepared to evict them if they didn't or couldn't pay the rent? Are there ongoing reasons why he's struggling? Perhaps you could just gift him money or pay towards his rent elsewhere for a while? Prob cheaper long term than what you're proposing.

foxy-stoat

ScubaCollie wrote: »

He would therefore be paying approx £400.00 rent to us per month (we could get around £1300.00 per month rent if we wasn't helping him!).

Why not rent out your property and gift him £400 a month to rent somewhere - you will still be up £500 on the deal.

Seriously if you think making an annual gross loss of £10,800 is good financial sense then you need to do some more research into money.

Sachs

You've asked about tax but I feel that's been thoroughly answered so I will just point out one more thing.

What you are discussing is Let to Buy, not Buy to Let. A lot of the main high street lenders do not do let to buy and some of them may also have a problem with the tenant being family.

As such you may need a new mortgage from a different lender. Your risk profile is now much higher than it was as an owner occupier and therefore your rate will probably increase.