Worth me renting out my flat?

[gotomuzzi]

Hopefully this year my girlfriend and I will be buying our first home together. I have been advised that flats in my area (Aberdeenshire) are currently not selling but the rental market is strong. Come January My fixed rate mortgage will come to an end and I will be able to sell up or switch to interest only and rent out. Could anyone tell me roughly how much I would get after tax etc and help me work out if it’s worth my while or not?

Mortgage repayments (interest only) - £200
Leasing agents fees £50
Landlords insurance £20
Rental income £550 PCM

Profit after paying the rent etc would be £280, I would pay 40% tax on this so.. £168 profit after tax?

I’m not sure what if anything is tax deductible?

I would appreciate any help anyone can offer.

[dai1983]

gotomuzzi said:

Hopefully this year my girlfriend and I will be buying our first home together. I have been advised that flats in my area (Aberdeenshire) are currently not selling but the rental market is strong. Come January My fixed rate mortgage will come to an end and I will be able to sell up or switch to interest only and rent out. Could anyone tell me roughly how much I would get after tax etc and help me work out if it’s worth my while or not?

Mortgage repayments (interest only) - £200
Leasing agents fees £50
Landlords insurance £20
Rental income £550 PCM

Profit after paying the rent etc would be £280, I would pay 40% tax on this so.. £168 profit after tax?

I’m not sure what if anything is tax deductible?

I would appreciate any help anyone can offer.

You’ll pay tax on £480 as the mortgage interest isn’t allowed as an expense now and youre a higher rate tax payer. Quick calculation gives you £88 profit a month.

Plus the new purchase with your Mrs will likely be classed as your second property adding an extra 3% stamp duty to that

[ozzuk]

Plus the cost of getting it up to safety spec, any repairs, contract costs, void periods...lot of hassle for not a lot of money.

What is the market like for your flat for a sale? If prices are strong then its even less of a case.

[Funk]

dai1983 said:

You’ll pay tax on £480 as the mortgage interest isn’t allowed as an expense now and youre a higher rate tax payer. Quick calculation gives you £88 profit a month.

Plus the new purchase with your Mrs will likely be classed as your second property adding an extra 3% stamp duty to that

I still think it's criminal how these rules got put in place to hammer private landlords yet corps can still offset interest and only pay (corp-rate!) tax on the profits.

[gotomuzzi]

Thanks for the help. Yes doesn’t seem worth it at all for £88. I could save a bit my managing it myself. And the extra 3% stamp duty is 10k which I’ll get back if I sell within 18 months... It Would take a long time to earn that £10k back at £88 PCM. Unfortunately the market seems to be flooded with flats at the moment.

[anonymous-user]

Funk said:

I still think it's criminal how these rules got put in place to hammer private landlords yet corps can still offset interest and only pay (corp-rate!) tax on the profits.

I'd argue it the other way around. It wasn't a good decision to relax the rules to allow lots of small-time BTL landlords to operate within a relaxed regime. Much better when it is inside a company. Plus it reduces some of the housing market distortions.

[MTech535]

How easy would our be to set up a limited company with ownership of a property?

[gotomuzzi]

Another question - Would it be possible/legal for the rent to get paid to my girlfriend (20% tax payer)?

[928]

Have you factored in the extra stamp duty payable on a second home if you keep your flat?

Retaining the flat might be a safety net too, but then your partner may view that as being not totally committed...

[anonymous-user]

gotomuzzi said:

Another question - Would it be possible/legal for the rent to get paid to my girlfriend (20% tax payer)?

No.