Buy to let and Income Tax

[Fergie87]

I have a pressing question over a buy to let property that involves the tax side of things. With google not retrieving the answer I am looking to tap into the knowledge bank that is pistonheads.

Over the past year I have been looking into buying a second property with the idea of letting it out. The only thing that has been putting me off is the tax paid on any income above the interest on the mortgage. For me this would be 40% of the taxable income.

I have recently read that if you jointly own the property with your spouse the tax can be split 50/50 which with my wife being in the lower bracket would put more money in our pockets. The problem is my wife's credit history is shocking due to poor choices before we met. This means that it is unlikely for us to get a mortgage together that is a decent interest rate.

This brings me to the question I can't find an answer for. Can I arrange the mortgage in my name and once the property has been secured then add her to the title deeds through the land registry? If this is possible can we then split the tax on income from rent or does she need to be on the mortgage?

Thanks
Fergie87

[Fergie87]

Thanks for the replies. She does have defaults on her credit file, the accounts have been settled but if I remember correctly they stay on file for 6 years. I really would like to have a second property but it's starting to look like it's not worth the hassle for what will be around £200pm after tax profit. Do any of you have rental properties, if so have you managed to make it profitable?

Edited by Fergie87 on Monday 6th July 17:26

[Fergie87]

Sarnie said:

Fergie87 said:

She does have defaults on her credit file, the accounts have been settled but if I remember correctly they stay on file for 6 years. I really would like to have a second property but it's starting to look like it's not worth the hassle for what will be around £200pm after tax profit.

If they are satisified and more than two years old (the older the better) then there will be options available to you. As you'd expect, rates will slightly higher, the taxation saving of doing it jointly should far outweigh the difference in rates, I would have expected..............

Thanks for the information I'll have a look into a joint mortgage and see if it is possible. I assumed it would be ruled out completely until 6 years after the default.

[Fergie87]

Countdown said:

Fergie87 said:

I really would like to have a second property but it's starting to look like it's not worth the hassle for what will be around £200pm after tax profit. Do any of you have rental properties, if so have you managed to make it profitable?

When you say "£200pcm after tax profit" is that also after mortgage repayment?

In other words if you are also paying off £200pm of any mortgage then the net profit is really £400pcm.BTL is definitely worth doing if you have over £50k spare cash and you're a dab hand at DIY.

That's just an interest only mortgage, I spoke to a mortgage advisor and he said most people go for interest only and bank the cash while waiting for the house to appreciate and gain equity then sell or remortgage to buy another. The figures I am looking at are £850pcm rent with the interest only mortgage being £275. That leaves me with £575 of which I would lose 40% to tax that leaves me with £230. I was told that arrangement fees, property management and maintenance can be claimed back on tax.

If I was to try and pay the mortgage it would leave me out of pocket each month. I was willing to do this but was advised not to.

I have no problems where DIY is concerned I completely renovated our house myself and have all tools needed available to me.

Edited by Fergie87 on Monday 6th July 22:48

[Fergie87]

Countdown said:

£575 less 40% tax is £345

So it is, that's some bad maths on my part

[Fergie87]

S6PNJ said:

£575 less 1/12 of the initial let fees (for first rental tax year), less 1/12 of your annual insurance, less 1/12 of the Gas safety certificate, less 1/12 of the repairs etc. All this is taken off the gross income before you start looking at tax. The tax is only on the profit, not the income less mortgage. if you have a good accountant, you might never make a 'profit' as such so your tax liability is greatly reduced.

I didn't realise pretty much every expenditure could be taken off tax. If we go ahead with this i definitely have to get an accountant. I'm assuming the accountants fee will also be written off against tax?