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Buy to let rather than sell to buy advice

I am planning on moving house and might have the opportunity to let my current house jointly with my father, rather than sell but could do with some advice.

My current house is worth in the region of £220k
My equity is about £150k
My first direct mortgage is around £70k.
The house I’d buy would be around £320k
My Dad wants to invest say £110k

How does income tax on buy to let investments work? What is a claimable expense, repayments, interest etc? Do the deeds of the property need to correspond to the person claiming the income and paying the tax? For tax reasons it makes much more sense for my Dad / wife to declare the income.

Assuming total trust between myself and my Dad, does this sound like a reasonable plan?

My Dad gives me £110k
I transfer my £70k mortgage to my new home
I release £40k of equity from my current house
I get a further mortgage of £100k

That gives me a total mortgage of £170k against a £320k house, so decent LTV of 53%.

I still have £110k equity in my current house
I get a buy to let mortgage for £110k - LTV is now 50%.

There is no stamp duty to pay on my current house and legal fees should be kept to a minimum. I can buy my new house without the burden of a chain.

Are there any flaws in my plan? Better ways to go?


Thanks for any help.
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Comments

  • lovinituk
    lovinituk Posts: 5,711
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    You would be liable for the additional 3% stamp duty on your new house as it would be a second owned property. So that would be £15600, instead of £6000 if you were to sell your old house and buy the new one.
  • lovinituk
    lovinituk Posts: 5,711
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    Mortgage interest as an expense on the buy to let is being phased out. By 2020 all of your BTL mortgage interest will be part of your income. You will still get a 20% tax credit to offset some of it but it may affect your tax bracket depending on your overall earnings. You need to know about Section 24.
  • Pixie5740
    Pixie5740 Posts: 14,515
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    If you want your wife and father to be the beneficial owners to reduce the income tax liability then you won't be letting to anyone...they will.

    The whole scenario is convoluted. My advice would be to sell your home, buy a new home even if that means you're in a chain, whilst your father invests his £110k in something else.
  • Cakeguts
    Cakeguts Posts: 7,627
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    My advice would be that if you want a buy to let property you buy one that is the most suitable for that job. Many people wrongly think that a house that they bought to live in will be suitable for a buy to let. It doesn't work like that. Some houses are totally unsuitable as a buy to let property. Some houses that are appealing to an owner occupier might be a tenants worst nightmare.

    If you try to let a house that isn't the kind of house that is popular with tenants it will be difficult to get anyone who wants to pay you to live there. That means that you don't get a choice of good tenant. If you don't get a choice of good tenant you run the risk of a tenant who will stop paying the rent and wreck the place. You will also get long periods where the property is vacant. If you want to buy a buy to let property you have to do extensive research into the kind of tenant in your area and what those tenants are looking for in terms of a home and where they are looking. It is no good just deciding to keep something that you used to live in.
  • Miles16v
    Miles16v Posts: 191 Forumite
    Thanks for replies - food for thought.

    Appreciated.
  • Crashy_Time
    Crashy_Time Posts: 13,386
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    Cakeguts wrote: »
    My advice would be that if you want a buy to let property you buy one that is the most suitable for that job. Many people wrongly think that a house that they bought to live in will be suitable for a buy to let. It doesn't work like that. Some houses are totally unsuitable as a buy to let property. Some houses that are appealing to an owner occupier might be a tenants worst nightmare.

    If you try to let a house that isn't the kind of house that is popular with tenants it will be difficult to get anyone who wants to pay you to live there. That means that you don't get a choice of good tenant. If you don't get a choice of good tenant you run the risk of a tenant who will stop paying the rent and wreck the place. You will also get long periods where the property is vacant. If you want to buy a buy to let property you have to do extensive research into the kind of tenant in your area and what those tenants are looking for in terms of a home and where they are looking. It is no good just deciding to keep something that you used to live in.


    Not sure I agree, anywhere someone can live as an owner or mortgaged can be lived in by someone renting? The key is to make the rental price attractive enough to get people interested, IMO anyway.
  • Cakeguts
    Cakeguts Posts: 7,627
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    Not sure I agree, anywhere someone can live as an owner or mortgaged can be lived in by someone renting? The key is to make the rental price attractive enough to get people interested, IMO anyway.

    Which people?
  • Crashy_Time
    Crashy_Time Posts: 13,386
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    eggha wrote: »
    that is why you are never going to be anything in the world of property owning. Of course you can let a property if you only charge 1 penny rent per year, but that is not the point is it? The point is to make money by letting suitable property to a suitable target market at a realistic rent.


    You seem to have missed the point made in the post I replied to? I would love to see some links to property that is only desirable to rent at a penny a year, yet is desirable for an owner occupier to live in, please post some. The wider point is that most BTL people are not going to make any money.
  • Crashy_Time
    Crashy_Time Posts: 13,386
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    Cakeguts wrote: »
    Which people?


    Sensible money saving people.
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