2nd home / Holiday Let as a retirement income

anselld

zagfles said:

Dazed_and_C0nfused said:

I suspect that this would be on the negatives list for many people,

You can get a 20% tax credit based on your mortgage interest payments, https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Indeed, for higher rate taxpayers they can't even fully deduct a genuine business expenses (ie mortgage interest) from the rental income they receive.

The mortgage interest restrictions do not apply to qualifying FHLs.  Interest can still be fully deducted by high rate payers.

bostonerimus

Roger175 said:

We have a second house, the income from which is all treated as part of our retirement planning, but it was never actually planned that way. In our case, we did a self-build and rather than face having to get involved with a self build mortgage, we kept our former home (which was un-encumbered), rented it out and took out an offset mortgage on it, so we had money available to fund the new house build as and when we needed it. At the end of the build, we intended selling the former house, but realised that we could do worse than keep it, so we converted the mortgage to a BTL type.

In our case we yield about 4% pre-tax on what we have borrowed but it would be less than half of that if we took into account the equity we have in the property and that's with us doing all our own maintenance and not using an agent.

I fully accept that this is not great and that we would probably be at least as well off selling the property, releasing the equity and investing this. Once we could get it all into pensions and Isa (which would take a few years) we would be better off, but we actually like the idea of the diversification and furthermore, we have seen a significant appreciation in the capital value in the last couple of years.

I certainly wouldn't advocate a BTL as an alternative to a pension, but as a balance second/supplemental pension income, it suits us. We will however be selling and investing the equity once we get a few years older. The hassle of doing this deep into retirement doesn't appeal! 

That's what I've found too. Get the regular pension investing sorted first and then you might add a rental property as a diversifier. However, I would never take on a holiday let because it just looks like a lot of work. My approach was to buy a house with a one bedroom flat on the ground floor and pay off the mortgage while I was still working. So I have a long term tenant downstairs which means I can keep an eye on things and easily fix stuff when needed. The rent comes in regularly too as a cheque on the first of the month dropped through my letter box.

I've had some nice capital gain and the yield is 6.5% gross and 4.5% after costs and taxes are taken out. The rent I charge is $20k/year and roughly $5k goes on expenses and taxes leaving me $15k to spend and supplement my $20k/year DB pension which comfortably covers my living expenses. So I have sufficient retirement income independent of the markets which helps with the blood pressure.

nigelbb

zagfles said:

Dazed_and_C0nfused said:

I suspect that this would be on the negatives list for many people,

You can get a 20% tax credit based on your mortgage interest payments, https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Indeed, for higher rate taxpayers they can't even fully deduct a genuine business expenses (ie mortgage interest) from the rental income they receive.

Not even if they use of Limited Company structure?

zagfles

nigelbb said:

zagfles said:

Dazed_and_C0nfused said:

I suspect that this would be on the negatives list for many people,

You can get a 20% tax credit based on your mortgage interest payments, https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Indeed, for higher rate taxpayers they can't even fully deduct a genuine business expenses (ie mortgage interest) from the rental income they receive.

Not even if they use of Limited Company structure?

Not sure, but either way deduction of a genuine business expense is not a "loophole"

bostonerimus

zagfles said:

nigelbb said:

zagfles said:

Dazed_and_C0nfused said:

I suspect that this would be on the negatives list for many people,

You can get a 20% tax credit based on your mortgage interest payments, https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Indeed, for higher rate taxpayers they can't even fully deduct a genuine business expenses (ie mortgage interest) from the rental income they receive.

Not even if they use of Limited Company structure?

Not sure, but either way deduction of a genuine business expense is not a "loophole"

When you have to pay for a new appliance or a repair in a rental, being able to deduct the expense is only small solace. It’s important to understand the expenses and effort required to successfully be a landlord so that you make some money and you provide good accommodation and have happy tenants.

Malthusian

nigelbb said:

zagfles said:

Dazed_and_C0nfused said:

I suspect that this would be on the negatives list for many people,

You can get a 20% tax credit based on your mortgage interest payments, https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Indeed, for higher rate taxpayers they can't even fully deduct a genuine business expenses (ie mortgage interest) from the rental income they receive.

Not even if they use of Limited Company structure?

If a higher rate taxpayer sticks a buy to let in a limited company the company can claim full tax relief on the mortgage interest. But income and gains are subject to corporation tax, and a higher rate taxpayer will pay a total of 46% tax on the way out assuming dividends (19% followed by 33.75%). And the company has to pay an extra 3% or 15% stamp duty.

Brie

The only way I would consider any rental property is if there was some intermediary to look after it.  So with a holiday home - buying in one of those "camps" where there's a managing concierge or something that would meet and greet and clean up afterwards.  So that would take a big cut of any profit (assuming there is profit).

I also wonder if you have a business of some sort that owns the property what happens when you yourself want to use it.  Do you need to log it as you paying standard rates or do you get it for free?  Wouldn't the business have to assume for accounting purposes that you have paid for the time you stay there?  (thinking back to a Japanese film I saw decades back called A Taxing Woman where a tax assessor catches out a shop owner who lets his kids help themselves to candy - which lessens his profits but ultimately he has to pay tax on)

Malthusian

I also wonder if you have a business of some sort that owns the property what happens when you yourself want to use it.  Do you need to log it as you paying standard rates or do you get it for free?

If you used it for free it would be taxed as a Benefit In Kind. So income tax and National Insurance for you, plus National Insurance for the company.

If you paid the company to use it, you would be putting money you've already paid tax on into the company, which at some point you would then have to pay tax on again to get out.

(thinking back to a Japanese film I saw decades back called A Taxing Woman where a tax assessor catches out a shop owner who lets his kids help themselves to candy - which lessens his profits but ultimately he has to pay tax on)

Pretty sure that in the UK this would also be taxable as a benefit in kind on the owner. Otherwise company owners would buy loads of stuff for family members within a limited company and then get the company to give it to them.

However, if the value of the sweets scoffed in the tax year was under £50, it would be exempt as a "trivial benefit".