Buy to Let

Tron103

Hi!
Weve been unable to sell our flat so now looking at how to convert it to a buy to let so we can move on. I had a couple of questions and hoping to get some advice:

Is there any way to calculate how much tax we would pay on a rental income of about £1100? Is it based on mine and my partners combined income?

Does rent typically include service and ground charges? Or should we budget to pay these on top?

And generally if anyone has any other tips, please throw my way!

Thanks in advance
Beth

Comms69

Tron103 said:

Hi!
Weve been unable to sell our flat so now looking at how to convert it to a buy to let so we can move on. I had a couple of questions and hoping to get some advice:

Is there any way to calculate how much tax we would pay on a rental income of about £1100? Is it based on mine and my partners combined income? - Depends how the property is owned. 

Does rent typically include service and ground charges? Or should we budget to pay these on top? - You pay these

And generally if anyone has any other tips, please throw my way!

Thanks in advance
Beth

Generally dont do it if you dont want to run a business. This isn't a hands off investment. Your flat is overpriced, that's all. 

theartfullodger

A legal minefield.  Only do it if you can afford the financial AND emotional strain of the tenant-from-hell (or agent-from...) who doesn't pay you for 15 (covid time estimate) months whilst you pay mortgage etc and legal fees and repair costs.  Repair costs? Oh yes, unless you want judge to side with tenant against evil mean landlord.
And the 'phone call @ 22:34 Saturday night about toilet leak.  Been going for 3 days.  Ruined carpet and sofa below. And needs fixing NOW!

Artful, landlord since 2000

steampowered

Remember that doing this means you will have to pay higher rate stamp duty on your next property.

Depending on the value of the property, that could cost you tens of thousands of pounds.

greatcrested

Tron103 said:

Hi!
Weve been unable to sell our flat so now looking at how to convert it to a buy to let It's not a BTL as you are not buying it. Pedantics maybe, but do you have a mortgage on this property? Lender's consent needed.
Is there any way to calculate how much tax we would pay on a rental income of about £1100? Is it based on mine and my partners combined income? Tax is complex. You will need toresearch this (or pay an accountant. But broadly £1100 x 10months rent = 11,000. Deduct allowable expenses (lots of research!). Consider which partner (or both) own the property/receive the rent/ pay the tax. Pay tax at the individual#s tax rate. See links below
Does rent typically include service and ground charges? Or should we budget to pay these on top? No,youpay them. As I assume this is a flat, do you need the freeholder's consent?
And generally if anyone has any other tips, please throw my way!

Now read these plus all the links within them....

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

** https://www.gov.uk/hmrc-internal-manuals/property-income-manual

AlexMac

If, after reading the above and ALL of Greatcrested's advice and stickies, you are not deterred I'd observe that I've enjoyed the benefits of being a landlord, of two small 2-bed flats, one owned for over 20 years and  the other for 10 years, without a single bad tenant or bad experience.  So highly satisfactory, despite me being an amateur.

But I did everything by the book; initially using Agents to find, vet and reference check tenants, set up the AST and sort deposits, albeit that I then collected rents and managed repairs myself, saving a grand or two agency fees.  This meant not being afraid to spend energy and money on immediate repairs and replacements; fixing leaks the moment they appear (as they inevitably will), replacing fridges or washers within a day or two and on one occasion, commissioning a couple of grand's worth of boiler replacement by a trusted engineer contact by phone from holiday in Italy- again within a couple of days of the tenant's call. Later I took over the vetting and leaglities myself too, saving another grand or two agency fees. 

But the legal and tax context is now more hostile to Landlords, and while I'll have benefitted from mind-boggling capital gains on both properties, that won't happen again; it's extremely unlikely that you'll see the ridiculous house price inflation of the past few decades.

As regards tax,  you'll only be into a couple of grand a year each if shared. This assumes you have Agents fees of 15% plus £2-3k p.a service charges, repairs and renewals?  That will total say £5k p.a. which you'll knock off your annual rental income of £13k, leaving about £8k taxable profit; say £4k each if jointly owned.  You'll each do an annual Self Assessment for HMRC (easy online) and then they'll ask for income tax on the £4k -odd at your usual rate; 25% or %40 or whatever- i.e a grand or two each. 

Tax relief on the interest only bit of your mortgage is now a bit more more complicated and capped at 25%, but again assuming you're talking about an asset worth £250k, jointly owned, I guess the interest element of your (say) £150-200k BTL mortgage will be around £4-5k of more. So you'll get further tax relief of about a quarter of that; say £1k plus, which still leaves you paying the majority of your home loan, assuming your lender permits you to convert the loan to a BTL.. So depending on how high they are, the mortgage repayments could make the whole thing non-viable?  (pay attention- I'll be asking Qs later). 

And if all that still hasn't put you off; you could check one final labour saving tip to help a decision. Ask at your Housing Action Centre or Council  if the Local Authority or any local Housing Association/Social Landlords want the flat on a long lease to house social tenants?  Round here they'll bite your hand off, although you might find the Freeholder or neighbours are less keen.  I've done that for almost 10 years on one flat and it's great.  The HA handle everything; legalities, maintenance and even annual gas safety checks.  I have to accept a rent a bit under market levels, and cough for a new boiler if needed, but there are no voids, bad debts, management costs or hassle.  And given that I was brought up in a Council flat and know how they can change lives, there's a small satisfaction of putting one unit back into the public housing pool!

Happy planning; and don't even think about ever splitting up and forcing a quick sale of what will be an illiquid asset... but then you will be together forever... won't you?

Crashy_Time

Comms69 said:

Tron103 said:

Hi!
Weve been unable to sell our flat so now looking at how to convert it to a buy to let so we can move on. I had a couple of questions and hoping to get some advice:

Is there any way to calculate how much tax we would pay on a rental income of about £1100? Is it based on mine and my partners combined income? - Depends how the property is owned. 

Does rent typically include service and ground charges? Or should we budget to pay these on top? - You pay these

And generally if anyone has any other tips, please throw my way!

Thanks in advance
Beth

Generally dont do it if you dont want to run a business. This isn't a hands off investment. Your flat is overpriced, that's all. 

Good advice.

oldbikebloke

AlexMac said:

As regards tax,  you'll only be into a couple of grand a year each if shared. This assumes you have Agents fees of 15% plus £2-3k p.a service charges, repairs and renewals?  That will total say £5k p.a. which you'll knock off your annual rental income of £13k, leaving about £8k taxable profit; say £4k each if jointly owned.  You'll each do an annual Self Assessment for HMRC (easy online) and then they'll ask for income tax on the £4k -odd at your usual rate; 25% or %40 or whatever- i.e a grand or two each. 

Tax relief on the interest only bit of your mortgage is now a bit more more complicated and capped at 25%, but again assuming you're talking about an asset worth £250k, jointly owned, I guess the interest element of your (say) £150-200k BTL mortgage will be around £4-5k of more. So you'll get further tax relief of about a quarter of that; say £1k plus, which still leaves you paying the majority of your home loan, assuming your lender permits you to convert the loan to a BTL.. So depending on how high they are, the mortgage repayments could make the whole thing non-viable?  (pay attention- I'll be asking Qs later). 

income tax rate 20% not 25% 
interest tax credit is at 20% not 25%

peter12345678910

I do not make any money from my flat, as they are fitting a new roof so service charge is 1 grand every 6 months. The first month of rent mostly goes to the agent in fees. Also you need an electrical report every 5 years:

As you may be aware the New Electrical Safety Obligations for landlords, came into force for New Tenancies on the 1st July 2020 and will also include all existing tenancies after the 1st April 2021.

You may be aware if they are not completed within the time scale, the Local Authorities are now issuing fines of up to £30k for each property in breach of these New Electrical Standards.

 

The Ministry of Housing, Communities and Local Government has issued guidelines ahead of new electrical safety checks coming into force for new tenancies from July 1 2020.

The main guidelines that cover the key part of the legislation, which are for landlords and their agents are namely:

- ensuring the electrical installations in rented properties are inspected and tested by a qualified and competent person at least every five years;

- obtaining a report from the person conducting the inspection and test which gives the results and sets a date for the next inspection and test;

- supplying a copy of this report to the existing tenant within 28 days of the inspection and test;

- supplying a copy of this report to a new tenant before they occupy the premises; with proof.

- supplying a copy of this report to any prospective tenant within 28 days of receiving a request for the report;

- supplying the local authority with a copy of this report within seven days of receiving a request for a copy;

- retaining a copy of the report to give to the inspector and tester who will undertake the next inspection and test; 

- where the report shows that remedial or further investigative work is necessary, complete this work within 28 days or any shorter period if specified as necessary in the report; and

- supplying written confirmation of the completion of the remedial works from the electrician to the tenant and the local authority within 28 days of completion of the works.

Without this inspection report, we would be unable to rent the property again if your tenant(s) were to give notice.
Have a 😭 day.