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andy230uk
Posts: 17 Forumite
Hi All,
I own a flat in Leeds where my fianc!e and I live. We’re happy there for the immediate future but anticipate moving into the suburbs within the next 2 or 3 years.
I’d like to keep hold of the flat and rent it out, and have calculated I can afford to do this. The issue is that we do not want to incur the extra 3% rate of stamp duty on a second home which I calculate to be £10,000 on a £250,000 property (as opposed to £2,500 if I didn’t own another property).
The only solution I can see to the stamp duty issue is to avoid a joint mortgage and for my fianc!e to buy the second property on her own. I understand this would have to be done before we marry. I like to think it would be a ‘joint’ purchase for all intents and purposes with me sending her my half of the deposit and mortgage repayments. I appreciate the big downside here is that this is less legally sound than a joint mortgage and have had discussions with a solicitor about how to ensure both parties are protected.
Since we don’t want to move just yet but would prefer to make the purchase before we marry (date TBA) to avoid stamp duty, we’re looking at getting a buy to let mortgage on a place that we’d like to live in further down the line. At the end of the initial buy-to-let mortgage term, we’ll switch it to a residential mortgage and move in. I’d then rent out the flat where we currently live. This could have the added advantage of buying a property soon, at a time where the prices seem to be rocketing.
Is this a feasible plan if my fianc!e can get a buy to let mortgage on her own (she earns around £43,000 and we have a deposit of around £50,000)? Is it easy enough to switch mortgages from buy-to-let, to residential at the end of the mortgage term? Are there any flaws in our masterplan?
Any help or advice would be much appreciated,
Thanks,
I own a flat in Leeds where my fianc!e and I live. We’re happy there for the immediate future but anticipate moving into the suburbs within the next 2 or 3 years.
I’d like to keep hold of the flat and rent it out, and have calculated I can afford to do this. The issue is that we do not want to incur the extra 3% rate of stamp duty on a second home which I calculate to be £10,000 on a £250,000 property (as opposed to £2,500 if I didn’t own another property).
The only solution I can see to the stamp duty issue is to avoid a joint mortgage and for my fianc!e to buy the second property on her own. I understand this would have to be done before we marry. I like to think it would be a ‘joint’ purchase for all intents and purposes with me sending her my half of the deposit and mortgage repayments. I appreciate the big downside here is that this is less legally sound than a joint mortgage and have had discussions with a solicitor about how to ensure both parties are protected.
Since we don’t want to move just yet but would prefer to make the purchase before we marry (date TBA) to avoid stamp duty, we’re looking at getting a buy to let mortgage on a place that we’d like to live in further down the line. At the end of the initial buy-to-let mortgage term, we’ll switch it to a residential mortgage and move in. I’d then rent out the flat where we currently live. This could have the added advantage of buying a property soon, at a time where the prices seem to be rocketing.
Is this a feasible plan if my fianc!e can get a buy to let mortgage on her own (she earns around £43,000 and we have a deposit of around £50,000)? Is it easy enough to switch mortgages from buy-to-let, to residential at the end of the mortgage term? Are there any flaws in our masterplan?
Any help or advice would be much appreciated,
Thanks,
0
Comments
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Flaws? well aside from the tax evasion, are you in anyway qualified to be a landlord? - or specifically is she?Hi All,
I own a flat in Leeds where my fianc!e and I live. We’re happy there for the immediate future but anticipate moving into the suburbs within the next 2 or 3 years.
I’d like to keep hold of the flat and rent it out, and have calculated I can afford to do this. The issue is that we do not want to incur the extra 3% rate of stamp duty on a second home which I calculate to be £10,000 on a £250,000 property (as opposed to £2,500 if I didn’t own another property). - That's unfortunate, better sell it then
The only solution I can see to the stamp duty issue is to avoid a joint mortgage and for my fianc!e to buy the second property on her own. - you would still pay CGT I understand this would have to be done before we marry. - Why? I like to think it would be a ‘joint’ purchase for all intents and purposes with me sending her my half of the deposit and mortgage repayments. - so just a tax dodge? I appreciate the big downside here is that this is less legally sound than a joint mortgage and have had discussions with a solicitor about how to ensure both parties are protected.
Since we don’t want to move just yet but would prefer to make the purchase before we marry (date TBA) to avoid stamp duty, we’re looking at getting a buy to let mortgage on a place that we’d like to live in further down the line. At the end of the initial buy-to-let mortgage term, we’ll switch it to a residential mortgage and move in. I’d then rent out the flat where we currently live. This could have the added advantage of buying a property soon, at a time where the prices seem to be rocketing.
Is this a feasible plan if my fianc!e can get a buy to let mortgage on her own (she earns around £43,000 and we have a deposit of around £50,000)? Is it easy enough to switch mortgages from buy-to-let, to residential at the end of the mortgage term? Are there any flaws in our masterplan?
Any help or advice would be much appreciated,
Thanks,0 -
Flaws? well aside from the tax evasion, are you in anyway qualified to be a landlord? - or specifically is she?
Well that's what I'm asking really. A solicitor has told me it's legal. If I can work around the governments restrictions in a legal way to save £7.5k I will. This is a money saving forum after all.
It would have to be done before we marry because afterwards we count as one 'entity' and would be liable for stamp duty either way.
Is anyone qualified to be a landlord?0 -
Well that's what I'm asking really. A solicitor has told me it's legal. If I can work around the governments restrictions in a legal way to save £7.5k I will. This is a money saving forum after all.
It would have to be done before we marry because afterwards we count as one 'entity' and would be liable for stamp duty either way. - yes and all your property becomes joint...
Is anyone qualified to be a landlord?
Yes, I can name several on this forum. They are experienced and knowledgeable and fair. They did the research and provide good service for their tenants.
Have you done any research?
If I was to say a 'section 21 notice', any ideas? 'Protecting deposit? Gas Safety? Right to rent?'0 -
Some prickly responses here Guest101, cheer up.Yes, I can name several on this forum. They are experienced and knowledgeable and fair. They did the research and provide good service for their tenants.
Have you done any research?
If I was to say a 'section 21 notice', any ideas? 'Protecting deposit? Gas Safety? Right to rent?'
I haven't done in depth research into being a landlord yet as I was looking to find out if this was a feasible plan before doing so.
I hadn't considered that all property become joint after marrying and didn't think that was the system so will research this further. Thanks0 -
Some prickly responses here Guest101, cheer up. - I'm not having a go, just trying to express the seriousness of your idea. Too many people become landlords off the cuff and then come on here complaining or worse, being sued.
I haven't done in depth research into being a landlord yet as I was looking to find out if this was a feasible plan before doing so. - Even if it is financially, you may find it's not practically. There's tax implications, 40% given your wife's income! There's legal implications, which include criminal offences in the extreme. There's battling emotional attachment, you're buying your 'forever home' but it will be the tenants home and you'll have to keep your emotions in check.
I hadn't considered that all property become joint after marrying and didn't think that was the system so will research this further. Thanks
Yes more research on all fronts!
0 -
It's not just avoiding being named on the mortgage or the deeds but you cannot have a beneficial interest in the property of £40k or more or the higher rate of SDLT will apply.
Your fianc!e will be limited to a very small pool of lenders who will accept a gifted deposit coming from someone living in the property but not named on the mortgage. That's before you even get into her getting a BTL mortgage without already owning her home and with only a 20% deposit.0 -
You own it 100%? Mortgage or not is irrelevant - you are the sole owner?I own a flat
Have you calculated if it's actually sufficiently profitable for the work? How much contingency have you built in? Will the mortgage be 125%+ covered by the rent?I’d like to keep hold of the flat and rent it out, and have calculated I can afford to do this.
No, I'm sure you don't...The issue is that we do not want to incur the extra 3% rate of stamp duty on a second home
If she is not an owner of the existing property, and you are not an owner of the additional one, and you are not a married couple, then she would not incur the 3%.The only solution I can see to the stamp duty issue is to avoid a joint mortgage and for my fianc!e to buy the second property on her own. I understand this would have to be done before we marry.
That sounds an awful lot like a tax evasion scheme...I like to think it would be a ‘joint’ purchase for all intents and purposes with me sending her my half of the deposit and mortgage repayments. I appreciate the big downside here is that this is less legally sound than a joint mortgage and have had discussions with a solicitor about how to ensure both parties are protected.
Either that or a regular gift to her. You're a very kind man. What happens if you split up? She owns the let property 100%, while she may have a claim on the property you've both been living in - especially after you marry.
No, SHE is looking, and SHE would be switching. You will not be involved. Your finances will not be taken account of, because you are not an owner.we’re looking at getting a buy to let mortgage... we’ll switch it to a residential mortgage
Given that she does not currently own a property, that alone may rule her out of a BtL mortgage.Is this a feasible plan if my fianc!e can get a buy to let mortgage on her own0 -
Assuming that you own the existing property in your sole name, then the plan looks feasible to me - certainly beyond the level where you could ask a professional without looking silly. A specialist broker may be required to address AdrianC's point about your OH not being a homeowner at the point of the BTL application.
Don't worry about Guest101's comments re: becoming a Landlord. Those are part of a generally grumpy attitude to LLs that persists amongst some FMs. Done in good faith, with respect to tenants and with knowledge of the (extensive) scope of the rules, it's well within the capabilities of the average person.
If there is an issue with the plan, it's likely to be the requirement to pay 40% Income Tax on the rental profit (including the additional amounts now required on account of the reduced entitlement to tax relief on mortgage payments).
There should be no issue in reverting the BTL mortgage to residential as long it's consistent with the terms of both mortgages.0 -
I can understand people being annoyed at having to pay the extra Stamp Duty - but can also understand why the Government introduced.
Whilst many have already commented on some of the crazyness of your plan - also consider the total tax position of the various plans.
Opt 1 - keep your flat and buy jointly in 3 years time = pay extra Stamp Duty on the purchase - then income tax and CGT on the BTL
Opt 2 - sell your flat and buy jointly in 3 years time - invest the gain from your flat in ISA's and Pensions - no extra tax paid in fact the government will give you tax back on the investment into pensions.
Opt 3 - keep your flat - partner buys a BTL = income tax and CGT to pay now - this may mean more tax is paid than under Opt 1!
So possibly by trying to avoid paying extra stamp duty you may actually end up paying more tax!
Unless you have a real desire to be a landlord - I'd be looking at option 2 as the one that makes most financial sense.0 -
Well, yes, but only because of more income/capital growth... You'd still have more money in your pocket.laidbackgjr wrote: »Opt 1 - keep your flat and buy jointly in 3 years time = pay extra Stamp Duty on the purchase - then income tax and CGT on the BTL
...
Opt 3 - keep your flat - partner buys a BTL = income tax and CGT to pay now - this may mean more tax is paid than under Opt 1!
So possibly by trying to avoid paying extra stamp duty you may actually end up paying more tax!0
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