Accountants and rental experts - advice please.
Discussion
This is a specific example, though I've left some numbers out as they're not key to the conversation.
I have a house on which the mortgage currently sits at an LTV of 55% or so. The mortgage is at 0.29% above base rate and has 20 years to run.
For a number of reasons I'm now looking to rent this out. The bank will let me keep the interest rate and the current mortgage for a limited period of a few years.
Rental value, once all fees etc are deducted, is 2.5x the monthly mortgage payment.
This income would fall into the 40% tax band. What should I do to reduce the tax liability?
Done a quick search on this, didn't find anything. Apologies if it's all been done before.
I have a house on which the mortgage currently sits at an LTV of 55% or so. The mortgage is at 0.29% above base rate and has 20 years to run.
For a number of reasons I'm now looking to rent this out. The bank will let me keep the interest rate and the current mortgage for a limited period of a few years.
Rental value, once all fees etc are deducted, is 2.5x the monthly mortgage payment.
This income would fall into the 40% tax band. What should I do to reduce the tax liability?
Done a quick search on this, didn't find anything. Apologies if it's all been done before.
"Putting house in wife's name" has serious repercussions for areas outside of tax.
Also, to do this effectively, it has to be done legally - with all the relevant third parties notified (mortgage company, Land Registry etc).
Putting the house into a limited company is a complicated affair with stamp duty and Capital Gains Tax issues.
And, of course, even if the company only pays 20% Corporation Tax on rental profits, the individuals involved will still be subject to personal Income Tax on any money they withdraw from the company for themselves.
Also, to do this effectively, it has to be done legally - with all the relevant third parties notified (mortgage company, Land Registry etc).
Putting the house into a limited company is a complicated affair with stamp duty and Capital Gains Tax issues.
And, of course, even if the company only pays 20% Corporation Tax on rental profits, the individuals involved will still be subject to personal Income Tax on any money they withdraw from the company for themselves.
Presumably you are able to live somewhere else mortgage-free and are not buying another property?
The posts above have all made it clear that there are issues with every approach. You might also be able make personal pension contributions (assuming the rental income is superfluous to your needs) that match the rent and thus recover all the tax. Only problem being it is then in a Pension and thus relatively illiquid.
Will the lender grant a further advance? Borrow more, buy another place...
Edited for spolling
The posts above have all made it clear that there are issues with every approach. You might also be able make personal pension contributions (assuming the rental income is superfluous to your needs) that match the rent and thus recover all the tax. Only problem being it is then in a Pension and thus relatively illiquid.
Will the lender grant a further advance? Borrow more, buy another place...
Edited for spolling
ferrisbueller said:
For a number of reasons I'm now looking to rent this out. The bank will let me keep the interest rate and the current mortgage for a limited period of a few years.
You should probably get proper advice on the tax situation.But from my perspective I would be doing everything in my power to hold on to that rate for as long as possible.
We won't see spreads like that again for a LONG time, possibly ever!
For example, port the mortgage to your primary residence.
This is my only house, I'm just not going to be living in it.
I can't extend the mortgage at the current rate either in terms of overall amount or the period where they will hold the rate for me. Either way the mortgage could only be ported to another house to be rented i.e. the rate would still be rescinded.
I was thinking of things like changing the term of the mortgage as I think the interest is tax deductible?
I can't extend the mortgage at the current rate either in terms of overall amount or the period where they will hold the rate for me. Either way the mortgage could only be ported to another house to be rented i.e. the rate would still be rescinded.
I was thinking of things like changing the term of the mortgage as I think the interest is tax deductible?
If you let the property furnished, you can obtain an automatic annual deduction equivalent to 10% of the gross annual rental.
In addition, any fees from an accountant to draw up your rental accounts and file your tax return are also an allowable expense.
Remember you need to utilise a property deposit scheme and obtain annual gas safety certificates.
David
In addition, any fees from an accountant to draw up your rental accounts and file your tax return are also an allowable expense.
Remember you need to utilise a property deposit scheme and obtain annual gas safety certificates.
David
BE57 TOY said:
Put it in wife's name to use her basic rate band?
Sell the house into a ltd company and then pay corporation tax on the rental?
ETA- the second point will capital gains tax issues in the future.
could you not set up a ltd company with OP and wife as directors and pay wife a wage / directors fee up to her tax free earnings limit? Assuming she doesnt currently earn or not up to 40%Sell the house into a ltd company and then pay corporation tax on the rental?
ETA- the second point will capital gains tax issues in the future.
Sounds like whichever way you turn you are going to have to pay a wedge to someone (solicitors/accountants to set up a LTD company, or get a more expensive mortgage to get the equity out to reduce to income ratio - I think they are your only options with the sounds of it?)
Question is, which is cheapest - then by how much and if its worth the hassle if it is just for a few years, just to save a few quid on tax. You'll have to do the numbers to work it out.
Question is, which is cheapest - then by how much and if its worth the hassle if it is just for a few years, just to save a few quid on tax. You'll have to do the numbers to work it out.
Eric Mc said:
Read all the other threads where this has been proposed and all the reasons why it isn't that clever an idea in reality.
Eric, is a Ltd company for Buy to lets always a bad idea or is it suitable in some circumstances?I am on the 40% threshold (Self Employed) I have some money that I would loan the Ltd Company along with my sister. If I got a number of properties with a view to taking dividends when I retire would this not be a sensible option as I do not want to make any profit until mortgages are cleared and i retire from the 9-5. I realise that mortgages for ltd companies are harder to acquire than personal mortgages and the rate might be slighter higher.
I shall be seeking advise from your trade nearer the time but ive been searching and reading but none the wiser at the mo.
Talk to your accountant.
I'm not being rude but he/she will know your personal tax circumstances better than you do and should be able to advise what is best for you.
In my experience, there are very few circumstances where running a buy to let through a limited company serves any major tax saving purpose whatsoever. All it does is make life extremely complicated and merely postpones the inevitable tax bill to a later date.
I'm not being rude but he/she will know your personal tax circumstances better than you do and should be able to advise what is best for you.
In my experience, there are very few circumstances where running a buy to let through a limited company serves any major tax saving purpose whatsoever. All it does is make life extremely complicated and merely postpones the inevitable tax bill to a later date.
Eric Mc said:
Talk to your accountant.
I'm not being rude but he/she will know your personal tax circumstances better than you do and should be able to advise what is best for you.
In my experience, there are very few circumstances where running a buy to let through a limited company serves any major tax saving purpose whatsoever. All it does is make life extremely complicated and merely postpones the inevitable tax bill to a later date.
+1 - have to concur. It's very rare that using an ltd would prove beneficial for 99% of UK tax residents.I'm not being rude but he/she will know your personal tax circumstances better than you do and should be able to advise what is best for you.
In my experience, there are very few circumstances where running a buy to let through a limited company serves any major tax saving purpose whatsoever. All it does is make life extremely complicated and merely postpones the inevitable tax bill to a later date.
David
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