Moving house but keeping existing house as a BTL

[MagicalTrevor]

We want to move house but one consideration is to keep our existing house as a BTL and then buy our next house.

Current mortgage has around £100k to go and the house is worth £350k or so.

We’re not looking for a bigger house, just a more convenient location so the next house is probably £350-400k.

In addition to all that, we have £100k in savings that will go towards all this.

I’m inclined to remortgage the £100k as a BTL mortgage on an interest only deal and then use the £100k as a deposit on the next house with a £250k+ mortgage.

How does that sound, or would you recommend a different way?

Thanks

[kiethton]

Would the numbers work? (Especially if you're a higher rate taxpayer)

Factoring in a normal yield, normal maintenance costs, the lack of interest deductibility and a mortgage of that size you'd see no income return, or make a massive loss if you get a bad tenant that pays no rent/smashes the place up.

Then you've got the hassle factor and the risks associated with a labour government...

[MagicalTrevor]

Good questions, and as a noob, I hadn’t considered all that.

I’m not looking to make money from the rental, just by retaining the property and having that as an asset when I retire.

[Saleen836]

Also factor in to your calculations the close to £20k in stamp duty (assuming £400k purchase cost)

[SV_WDC]

I have friends that have done what you are proposing. Speaking to them, it seems the only way to make a decent return is to move the property into a Ltd company & have more than 1. But as a retirement fund it could work too. There are just CGT considerations & presumably corporation taxes.

[MagicalTrevor]

It seems like less of a good than expected.

We don’t need a bigger house but it feels like investing in property alongside a pension would be a good thing. Seems not.

[Eric Mc]

kiethton said:

Would the numbers work? (Especially if you're a higher rate taxpayer)

Factoring in a normal yield, normal maintenance costs, the lack of interest deductibility and a mortgage of that size you'd see no income return, or make a massive loss if you get a bad tenant that pays no rent/smashes the place up.

Then you've got the hassle factor and the risks associated with a labour government...

You DO get tax relief on interst paid but it is restricted to your 20% tax band. So, if you are a higher arte taxpayer, you do not get tax relief on the interest at the higher levels of tax you are paying.

And as you seem to be assuming that Labour will damage rental income, in the last six years the current Conservatives have done more to make rental income less viable than any government prior to them.

[Peanut Gallery]

Just to say, this is what I have done, in short, would not recommend..

Yes, mine does turn a small profit, but will take a good number of years to repay the second home tax, and that is before annual tax returns, gas checks, and a tennant flooding the place and causing grief, and then can go without paying for 6 months before you can start getting them out.

And that's also before the normal wear and tear and roof leaks..

[MagicalTrevor]

Thank you all, the stories don’t fill me with confidence, but that’s why I asked the question.

Thank you for your guidance.

[Eric Mc]

The other thing to consider is that once you move into your new home, the previous house will no longer be fully eligible for Capital Gains Tax Main Residence Relief. This happens whether you let the old property or not.

The relief doesn't disappear completely but reduces gardually over time based from the date you moved into what has become your new Main Residence.

Every individual gets an annual Capital Gains Tax allowance. This had risen over the years to £12,300 per person. However, the current government have slashed this relief and it is now down to £3,000 per person.

As for transferring the company into a limited company, do not do this unless you fully understand the Corporation Tax, Capital Gains Tax and Stamp Duty implications of doing this.

[Cats_pyjamas]

I was in a similar position a couple years ago. I decided against it as the numbers didn't stack up when considering the risks and hassle, it's much easier to invest in a stocks and shares ISA. Ironically the buyer, intended to let the property.

Either way if you can afford to buy and then sell chain free (or keep the property if you wish) you are in a very strong buying position at this price range in the market.

Personally, the position allowed us to buy a property where the chain had broken down. The sellers were desperate for a buyer (they required funds to complete a house build), we secured the property below market value, and completed within 5 weeks. I then sold my property 4 months later, and then cleared a good lump of the mortgage on renewal more recently. Horses for courses.