Consent to let - tax, etc.

Louaven34

Hello,
I am on a fixed rate 5 yr mortgage and will need to let my flat out through a letting agency for up to two years while I am living away.
I am so confused about the tax! When you let your flat out via CTL, do you typically get professional advice on tax, etc.? 
I know rental expenses can be offset but what about mortgage payments? It is currently looking like the rental will not cover my mortgage payments by a long way because of the tax and just wondered if I am missing something...

Thanks for your insight! 
Lou 

Comms69

Louaven34 said:

Hello,
I am on a fixed rate 5 yr mortgage and will need to let my flat out through a letting agency for up to two years while I am living away.
I am so confused about the tax! When you let your flat out via CTL, do you typically get professional advice on tax, etc.? 
I know rental expenses can be offset but what about mortgage payments? It is currently looking like the rental will not cover my mortgage payments by a long way because of the tax and just wondered if I am missing something...

Thanks for your insight! 
Lou 

You 'want' to, you dont 'need' to. 

To be frank, if you cant work out 20% or 40% of income less expenses, you shouldnt be running a business. 

And no, i dont fancy paying off your mortgage, thanks all the same...

Louaven34

I'm not running a business. I'm letting out my flat while I pay rent elsewhere. A common circumstance, hence why most banks offer option to CTL for limited period. 

If anyone else has experience in this area/helpful insights, that would be much appreciated! 

Comms69

Louaven34 said:

I'm not running a business. I'm letting out my flat while I pay rent elsewhere. A common circumstance, hence why most banks offer option to CTL for limited period. 

If anyone else has experience in this area/helpful insights, that would be much appreciated! 

Yes you are, and that's the problem.

Louaven34

Anyone else able to advise? 

greatcrested

Louaven34 said:

Hello,
I am on a fixed rate 5 yr mortgage and will need to let my flat out through a letting agency for up to two years while I am living away.

Not all lenders grant CTL. You may need to apply for a BTLmortgage (and pay the penalty for paying of your existing residential mortgage during the fixed rate period). Ask your lender what their policy is.

I am so confused about the tax! When you let your flat out via CTL, do you typically get professional advice on tax, etc.? Paying tax is nothing to do with CTL. It is to do with rental income.
I know rental expenses can be offset but what about mortgage payments?

The allowances you can offset against your income for tax purposes are complex. Read up on the detail. You certainly can't offset the full mortgage payments, only the interest element.

It is currently looking like the rental will not cover my mortgage payments by a long way

How much do you anticipate the monthy rent will be? Multiply by 10 to get an aprox annual figure (to allow for voids between tenants etc).

How much will your annual mortgage payments be (after CTL or BTL granted?

You need to read up on letting property, and you need to do a full budget showing all income and costs.

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/renting-out-a-property/paying-tax

Comms69

I'm not sure which bit you think is wrong? 

But here's an example for you. Let's say you decided you wanted to move back in - in today's world that means serving a 6 month notice; and realistically the tenant would still be in the flat in 2022. Why would you even consider doing this without even knowing the basics is beyond me. Sell up. 

Louaven34

Thank you greatcrested! I'll read the links you have provided. That's v helpful.

saajan_12

Louaven34 said:

Hello,
I am on a fixed rate 5 yr mortgage and will need to let my flat out through a letting agency for up to two years while I am living away.- what's the plan after 2 years? No idea if / when they'll change, but under the current notice rules and backlog for evictions, it could take a year to evict tenants. Will you be able to stay somewhere else while you wait for the process? 
I am so confused about the tax! When you let your flat out via CTL, do you typically get professional advice on tax, etc.? - the type of mortgage is between you and your lender, doesn't really affect the tax. 

I know rental expenses can be offset but what about mortgage payments? It is currently looking like the rental will not cover my mortgage payments by a long way because of the tax and just wondered if I am missing something... You pay income tax on your rent less non financing expenses (ie rent - repairs costs, agent fees etc). Then you get a 20% tax credit on your mortgage interest. Note this is the interest portion only, not the capital repayment part. Also, if you were just under the higher rate threshold, the rent may push you into the higher rate, so you pay 40% on that and then get 20% credit on the mortgage interest. 

Thanks for your insight! 
Lou 

For more detailed help, we'd need rough figures for
- rent income
- expenses (eg repairs, insurance, agent fees, etc)
- mortgage interest amount
- your other income (eg salary)

Also, you are running a business, as people on this forum will be quick to point out. I don't think that means you can't ask questions as part of your research, but there are demanding requirements of a landlord, which you have to approach professionally. Tenants will expect this and there are large penalties if you don't, both in monetary costs and being blocked from doing things such as evicting. 

Louaven34

Thanks, Saajan. Might be best if I come back after I have spoken to the letting agent and have hard figures. Am conscious of the responsibilities entailed (in part from being a tenant for many years), but helpful to have this clarified. 

Louaven34

Also, Saajan, just saw your other very helpful responses in bold. Bottom part is really helpful as basically confirms what I thought. 
As for two-year point, that is also helpful.to note... 
All the best 
Lou