Keep house as BTL or sell?
Discussion
I’ve read most of the previous threads on this topic but would help to have a bit of discussion to clear up my own thoughts.
I have a small property worth 260k with 160 equity.
Looking to move in with partner. The options are cash it in and put it all towards a dream house, feel poor for a while as we get back on our feet but nothing extreme.
Or keep my house, take out 60k equity towards a new one with a bit of my savings and a bit of hers and let my current property for around 900 a month. Interest only mortgage should come in around £400 per month of less. I am just about in the lower tax bracket for income but am self employed and could consider working less and letting the house income take me up to just below 50k instead. I want to stay below the vat threshold in my business so might not be a bad thing as I’m very close to it.
The obvious down sides are the increased interest on my new home due to much lower deposit. Compromising on the new home to something that fits my needs rather than being a dream house. Hassle of tenants. Low return, maybe £200 a month assuming all goes smoothly. Unexpected maintenance and refurbishing costs. Stamp duty.
On the other hand, could probably keep the property until I retire which would make up for my lack of decent pension. Assuming large capital growth as I’m mid 30s. A safety net of still having my own place to fall back on. As well as the rental income increasing over the years with the mortgage hopefully not changing too much. Boiler issues etc not a problem as that’s what I do. Over time me and my partner can save approx 15k a year as a bare minimum possibly a lot more which could eventually buy a better place as a primary residence.
Just finding it tough to work out if with all the tax implications I’d end up better off after 30 years with a second house or I’m better plowing it all into my new home now and building equity (which will likely never end up as capital without downsizing)
I have a small property worth 260k with 160 equity.
Looking to move in with partner. The options are cash it in and put it all towards a dream house, feel poor for a while as we get back on our feet but nothing extreme.
Or keep my house, take out 60k equity towards a new one with a bit of my savings and a bit of hers and let my current property for around 900 a month. Interest only mortgage should come in around £400 per month of less. I am just about in the lower tax bracket for income but am self employed and could consider working less and letting the house income take me up to just below 50k instead. I want to stay below the vat threshold in my business so might not be a bad thing as I’m very close to it.
The obvious down sides are the increased interest on my new home due to much lower deposit. Compromising on the new home to something that fits my needs rather than being a dream house. Hassle of tenants. Low return, maybe £200 a month assuming all goes smoothly. Unexpected maintenance and refurbishing costs. Stamp duty.
On the other hand, could probably keep the property until I retire which would make up for my lack of decent pension. Assuming large capital growth as I’m mid 30s. A safety net of still having my own place to fall back on. As well as the rental income increasing over the years with the mortgage hopefully not changing too much. Boiler issues etc not a problem as that’s what I do. Over time me and my partner can save approx 15k a year as a bare minimum possibly a lot more which could eventually buy a better place as a primary residence.
Just finding it tough to work out if with all the tax implications I’d end up better off after 30 years with a second house or I’m better plowing it all into my new home now and building equity (which will likely never end up as capital without downsizing)
Alrey87 said:
I’ve read most of the previous threads on this topic but would help to have a bit of discussion to clear up my own thoughts.
I have a small property worth 260k with 160 equity.
Looking to move in with partner. The options are cash it in and put it all towards a dream house, feel poor for a while as we get back on our feet but nothing extreme.
Or keep my house, take out 60k equity towards a new one with a bit of my savings and a bit of hers and let my current property for around 900 a month. Interest only mortgage should come in around £400 per month of less. I am just about in the lower tax bracket for income but am self employed and could consider working less and letting the house income take me up to just below 50k instead. I want to stay below the vat threshold in my business so might not be a bad thing as I’m very close to it.
The obvious down sides are the increased interest on my new home due to much lower deposit. Compromising on the new home to something that fits my needs rather than being a dream house. Hassle of tenants. Low return, maybe £200 a month assuming all goes smoothly. Unexpected maintenance and refurbishing costs. Stamp duty.
On the other hand, could probably keep the property until I retire which would make up for my lack of decent pension. Assuming large capital growth as I’m mid 30s. A safety net of still having my own place to fall back on. As well as the rental income increasing over the years with the mortgage hopefully not changing too much. Boiler issues etc not a problem as that’s what I do. Over time me and my partner can save approx 15k a year as a bare minimum possibly a lot more which could eventually buy a better place as a primary residence.
Just finding it tough to work out if with all the tax implications I’d end up better off after 30 years with a second house or I’m better plowing it all into my new home now and building equity (which will likely never end up as capital without downsizing)
Ordinarily I wouldn't recommend anyone getting involved with BTL right now. It is a hostile place, even for the experienced. I have a small property worth 260k with 160 equity.
Looking to move in with partner. The options are cash it in and put it all towards a dream house, feel poor for a while as we get back on our feet but nothing extreme.
Or keep my house, take out 60k equity towards a new one with a bit of my savings and a bit of hers and let my current property for around 900 a month. Interest only mortgage should come in around £400 per month of less. I am just about in the lower tax bracket for income but am self employed and could consider working less and letting the house income take me up to just below 50k instead. I want to stay below the vat threshold in my business so might not be a bad thing as I’m very close to it.
The obvious down sides are the increased interest on my new home due to much lower deposit. Compromising on the new home to something that fits my needs rather than being a dream house. Hassle of tenants. Low return, maybe £200 a month assuming all goes smoothly. Unexpected maintenance and refurbishing costs. Stamp duty.
On the other hand, could probably keep the property until I retire which would make up for my lack of decent pension. Assuming large capital growth as I’m mid 30s. A safety net of still having my own place to fall back on. As well as the rental income increasing over the years with the mortgage hopefully not changing too much. Boiler issues etc not a problem as that’s what I do. Over time me and my partner can save approx 15k a year as a bare minimum possibly a lot more which could eventually buy a better place as a primary residence.
Just finding it tough to work out if with all the tax implications I’d end up better off after 30 years with a second house or I’m better plowing it all into my new home now and building equity (which will likely never end up as capital without downsizing)
But you've got a property already.
It will hopefully be a good hedge against inflation and might offer you an income.
The flip side is that the government has a hard-on for BTL landlords currently and you can look forward to a great deal of regulation as well as potentially increased taxation. The biggest risk however, in my opinion, is difficulty in getting your property back if you need to.
The government is banging on about ending non-fault evictions. If they are sensible, this will not apply where the landlord wants to return to the property as their home. I am increasingly of the view, however, that the government isn't sensible.
The biggy for me is that you are moving in with someone for the first time. I'd be keeping your old place, if possible, just in case it doesn't work out.
But if you DO decide to keep it, I would suggest firstly speaking to an accountant about your specific circumstances because there are traps you can fall into that are specific to your specific circumstances.
Secondly, and this is not something I would have recommended until quite recently, get a reputable letting agent to at least find and facilitate a contract with your new tenants. Messing things up at the beginning can make life a living hell for you later.
Best of luck.
Firstly, I think the age and financial position of those replying will have a strong bearing on your decision.
Having retired I've chosen to dispose of my BTL properties - the last one going up for sale next week.
But as a retiree, my position and financial needs are clearly different to yours.
If your looking, as you state, for a pension nest egg then there's nothing better. Remember though it's disposal isn't always just at the right time, I well recall a friend in the '80s who'd bought a family home and sat on it wanting to move for 6 years or so sitting on negative equity. It sounds like you've passed that borderline phase on your buying price/current value however.
Yes, over the years you will get tenants who annoy and cost you money
Its not at all like "can't pay, we'll take it away" the reality is much darker than that and, having chased a tenant around half the UK I'm going to be lucky to get 1/2 my money back from whats owed, plus there's the fees on top so I'll be down on the whole process. Depending on property size and your view on social responsibility, you'll probably want/need to redecorate after every tenant and that cost, whilst tax deductible has to be funded, ditto maintenance. In short you'll be funding another property so expect financial exposure. Personally I use a tax accountant to insure I comply all ways round.
Maybe the other way to look at it is, if you don't run this property as a BTL, where are you going to put your money?
Finally, as with all BTL decisions.
DO YOUR RESEARCH
If you just run the thing as a bit of fun, take it seriously and it'll drive you crazy, petty claims form the tenant which you might feel aren't your responsibility, ( I've had two this year, a garage handle which was broken, how? He backed his van into it thats how, and a wasps nest, is that really my role to sort out?
But roll with it and just suck up the money while you can.
Having retired I've chosen to dispose of my BTL properties - the last one going up for sale next week.
But as a retiree, my position and financial needs are clearly different to yours.
If your looking, as you state, for a pension nest egg then there's nothing better. Remember though it's disposal isn't always just at the right time, I well recall a friend in the '80s who'd bought a family home and sat on it wanting to move for 6 years or so sitting on negative equity. It sounds like you've passed that borderline phase on your buying price/current value however.
Yes, over the years you will get tenants who annoy and cost you money
Its not at all like "can't pay, we'll take it away" the reality is much darker than that and, having chased a tenant around half the UK I'm going to be lucky to get 1/2 my money back from whats owed, plus there's the fees on top so I'll be down on the whole process. Depending on property size and your view on social responsibility, you'll probably want/need to redecorate after every tenant and that cost, whilst tax deductible has to be funded, ditto maintenance. In short you'll be funding another property so expect financial exposure. Personally I use a tax accountant to insure I comply all ways round.
Maybe the other way to look at it is, if you don't run this property as a BTL, where are you going to put your money?
Finally, as with all BTL decisions.
DO YOUR RESEARCH
If you just run the thing as a bit of fun, take it seriously and it'll drive you crazy, petty claims form the tenant which you might feel aren't your responsibility, ( I've had two this year, a garage handle which was broken, how? He backed his van into it thats how, and a wasps nest, is that really my role to sort out?
But roll with it and just suck up the money while you can.
Yes, I omitted that, as Alrey 87 stated, get a good Letting Agent, not always easy.
There are so many restrictions being brought in you'll need to comply. Plus your tenancy needs to be properly managed and a good agent will do this for you.
Issues like rental reviews, terms of lease, type of lease, maintenance issues, out of hours complaints/emergency calls etc, you don't want all that, or maybe you do?
Lots to consider.
There are so many restrictions being brought in you'll need to comply. Plus your tenancy needs to be properly managed and a good agent will do this for you.
Issues like rental reviews, terms of lease, type of lease, maintenance issues, out of hours complaints/emergency calls etc, you don't want all that, or maybe you do?
Lots to consider.
I was in a similar situation in my mid-30s - when I met my partner we both owned our own homes and when I moved into hers I had to decide what to do with mine. I kept it as a BTL mainly just in case we split up and I needed somewhere to move back into…
Happily married now and it’s kept as a BTL on a repayment mortgage, over the year it just about breaks even (I’m in the higher tax bracket) but we see it as a retirement fund rather than an income now. It’s also there in case one of us can’t work any more, we sell the BTL, pay off the mortgage on our main house and live off one income.
Being lazy I’ve always gone through an agent, 99% of the time they’re not worth the money but they do filter out the bad tenants (mostly) at the start and handle things if it ends badly.
Happily married now and it’s kept as a BTL on a repayment mortgage, over the year it just about breaks even (I’m in the higher tax bracket) but we see it as a retirement fund rather than an income now. It’s also there in case one of us can’t work any more, we sell the BTL, pay off the mortgage on our main house and live off one income.
Being lazy I’ve always gone through an agent, 99% of the time they’re not worth the money but they do filter out the bad tenants (mostly) at the start and handle things if it ends badly.
Alrey87 said:
I have a small property worth 260k with 160 equity. Looking to move in with partner.
OK, so if you sell your existing main residence it will be free from Capital Gains Tax.Alrey87 said:
Or let my current property for around 900 a month.
Rental properties are subject to Capital gains Tax when you eventually sell and the tax is charged at an enhanced rate these days. There are limited transition arrangements if you previously lived in it.Alrey87 said:
I want to stay below the vat threshold in my business so might not be a bad thing as I’m very close to it.
How does VAT have any relevance here? Your property rental activity would presumably be in no way related to whatever other business you are involved in. There can be massive complications around property, VAT and the "option to tax".Alrey87 said:
Stamp duty.
Stamp duty is irrelevant unless you, for instance, sell your personal property into a separate business entity.What would I do? Buy a decent house with your partner; make 100% certain you've got the inputs to that property properly documented (in case things go wrong) and invest any surplus cash in ISA and/or pension to suit your future plans and maximise tax benefits.
Panamax said:
Alrey87 said:
Stamp duty.
Stamp duty is irrelevant unless you, for instance, sell your personal property into a separate business entity.MesoForm said:
Is it irrelevant? I was under the impression if he kept his property as a BTL and then bought jointly with this partner 5 years down the line it would count as a second home and the increase in stamp duty that's associated with that?
Correct. I’m in that exact boat and it does suck having to shell out a lot more stamp duty when moving. Thanks all.
Still can’t decide really. Latest idea is, as I’ll likely be forming a limited company for my business soon, I can then make sure I only pay myself enough to stay in the lower tax bracket which makes the BTL more attractive. I can then pay into a pension direct from my limited company tax free.
There’s also the risk of interest rates becoming so high and price houses falling to the extent that I’m stuck with a loss making asset - I guess that’s unlikely but who knows at the moment.
Loss of rent etc I’m no longer concerned about as insurance covers all that for a fairly modest fee.
Rough calculations if houses gain 5% a year over 20 years and having lived in the property for 8 years already I’d get a lot of capital gain reduction - this would leave me something like 300k profit after tax plus my rental returns over that period, which should keep increasing in theory. However - what’s 300k worth in 20 years, probably not a lot so there’s that to consider as well…
Still can’t decide really. Latest idea is, as I’ll likely be forming a limited company for my business soon, I can then make sure I only pay myself enough to stay in the lower tax bracket which makes the BTL more attractive. I can then pay into a pension direct from my limited company tax free.
There’s also the risk of interest rates becoming so high and price houses falling to the extent that I’m stuck with a loss making asset - I guess that’s unlikely but who knows at the moment.
Loss of rent etc I’m no longer concerned about as insurance covers all that for a fairly modest fee.
Rough calculations if houses gain 5% a year over 20 years and having lived in the property for 8 years already I’d get a lot of capital gain reduction - this would leave me something like 300k profit after tax plus my rental returns over that period, which should keep increasing in theory. However - what’s 300k worth in 20 years, probably not a lot so there’s that to consider as well…
You’d need to do the specific maths based on the cash flow (allowing for expenses, taxes and occasional lack of occupancy) for keeping it.. vs the increase in equity in the new place.
Totally rough numbers here but let’s say property increases by 20% in the next decade.
£100K house is worth £120k
£1m house is worth £1.2m.
A ten times increase in asset value. Is that more or less than the property will earn you in cash flow and equity if you kept it? I’ve no idea! But that’s the math I’d be looking at.
I use this example as we moved to the USA. Our house in the Uk was worth £200k and was roughly break even on cash flow for us for renting it. We could only afford to buy our dream home in the US ($800k) if we sold and transferred the equity. That was 2017.. with the house prices increases we are (currently) much better off (on paper not in cash) having bought over here than keeping the Uk rental.
Also.. money aside. Much nicer house, nicer day to day living experience / kids growing up in house with a pool etc.. money isn’t everything if your dream house also has a significant positive impact on lifestyle and personal happiness.
Totally rough numbers here but let’s say property increases by 20% in the next decade.
£100K house is worth £120k
£1m house is worth £1.2m.
A ten times increase in asset value. Is that more or less than the property will earn you in cash flow and equity if you kept it? I’ve no idea! But that’s the math I’d be looking at.
I use this example as we moved to the USA. Our house in the Uk was worth £200k and was roughly break even on cash flow for us for renting it. We could only afford to buy our dream home in the US ($800k) if we sold and transferred the equity. That was 2017.. with the house prices increases we are (currently) much better off (on paper not in cash) having bought over here than keeping the Uk rental.
Also.. money aside. Much nicer house, nicer day to day living experience / kids growing up in house with a pool etc.. money isn’t everything if your dream house also has a significant positive impact on lifestyle and personal happiness.
MesoForm said:
I
Being lazy I’ve always gone through an agent, 99% of the time they’re not worth the money but they do filter out the bad tenants (mostly) at the start and handle things if it ends badly.
How would you know that? We run a letting business and almost 100% of the time when we take on a DIY landlord who thinks they know how to do the paperwork when we review it they have made multiple errors. We also are seeing DIY landords getting fined by trading standards more and more now as the council get to keep the fines. They didnt a few years ago.Being lazy I’ve always gone through an agent, 99% of the time they’re not worth the money but they do filter out the bad tenants (mostly) at the start and handle things if it ends badly.
90% of the time if you dont have compliant paperwork it wont be an issue hence why most DIY landlords think agents are not worth the money.
Most of our work is on compliance and Proving compliance (which is invisible to most landlords ) the other 40% is on the visible side of what LL see. We are good in highlighting to our LL the full work we do and how we can more than cover our fess in providing a safe and successful letting.
No all agents are the same - some are shocking and a disaster wating to happen but as mentioned most times tenants dont create a fuss or the compliance is not checked or tested. This is an open goal and which the Govt is aiming to kick non compliant LL in the nuts for very soon. They want non compliant landlords out, they want landlords to use regulated agents who will uphold the compliant regulations.
Edited by superlightr on Wednesday 7th September 13:17
MesoForm said:
I was in a similar situation in my mid-30s - when I met my partner we both owned our own homes and when I moved into hers I had to decide what to do with mine. I kept it as a BTL mainly just in case we split up and I needed somewhere to move back into…
Happily married now and it’s kept as a BTL on a repayment mortgage, over the year it just about breaks even (I’m in the higher tax bracket) but we see it as a retirement fund rather than an income now. It’s also there in case one of us can’t work any more, we sell the BTL, pay off the mortgage on our main house and live off one income.
Being lazy I’ve always gone through an agent, 99% of the time they’re not worth the money but they do filter out the bad tenants (mostly) at the start and handle things if it ends badly.
We are in exactly the same position and see it as part of our pension. £750 pcm as a start to the pension pot. Been lucky with tenants these are on their 5th year and have very much made it their own. Don’t think I’ve seen it in 3 years I presume it’s still standing. Happily married now and it’s kept as a BTL on a repayment mortgage, over the year it just about breaks even (I’m in the higher tax bracket) but we see it as a retirement fund rather than an income now. It’s also there in case one of us can’t work any more, we sell the BTL, pay off the mortgage on our main house and live off one income.
Being lazy I’ve always gone through an agent, 99% of the time they’re not worth the money but they do filter out the bad tenants (mostly) at the start and handle things if it ends badly.
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