I think i might be about to become an accidental landlord
Discussion
I am buying a new home and have put an offer in and I am wanting to proceed. This was all very impulsive so i put my house on the market the day i made the offer.
I have the cash for the deposit and fees for but was hoping to sell my house first so i could put down more deposit using some of the equity.
Nevertheless, the seller is wanting to proceed (understandably) so I am looking at potentially letting my house out.
I am a 40 percent tax payer at the point where if I earn any more i will lose my personal allowance (..i think). My wife is a lower rate tax payer.
My remaining mortgage is £130k on my current home
Current monthly payments are about £670
Rent would be about £975/£1000 a month
Would i get taxed on the rent, if so what rate? Would i end up making a loss?
Thanks!
I have the cash for the deposit and fees for but was hoping to sell my house first so i could put down more deposit using some of the equity.
Nevertheless, the seller is wanting to proceed (understandably) so I am looking at potentially letting my house out.
I am a 40 percent tax payer at the point where if I earn any more i will lose my personal allowance (..i think). My wife is a lower rate tax payer.
My remaining mortgage is £130k on my current home
Current monthly payments are about £670
Rent would be about £975/£1000 a month
Would i get taxed on the rent, if so what rate? Would i end up making a loss?
Thanks!
Don't forget you will have to pay secondary stamp duty on the house you are buying due to it being a second home.
Are you going to pay an agent to manage it, if so that will probably cost you 10% of the rental income. Yes you will have to pay tax on the rent.
From the figures you have given I suspect you will make no money from the rental and the mortgage on you new house will be considerably more as your deposit is tied up in your current house.
Unless this is a long term investment I personally would not do it.
Are you going to pay an agent to manage it, if so that will probably cost you 10% of the rental income. Yes you will have to pay tax on the rent.
From the figures you have given I suspect you will make no money from the rental and the mortgage on you new house will be considerably more as your deposit is tied up in your current house.
Unless this is a long term investment I personally would not do it.
Edited by anonymous-user on Monday 21st January 12:38
supercommuter said:
My remaining mortgage is £130k on my current home
Current monthly payments are about £670
Rent would be about £975/£1000 a month
Would i get taxed on the rent, if so what rate? Would i end up making a loss?
(i) That monthly payment may go up when you get 'consent to let' from your existing bank. If they add 100 bps to your interest rate that's £110 / monthCurrent monthly payments are about £670
Rent would be about £975/£1000 a month
Would i get taxed on the rent, if so what rate? Would i end up making a loss?
(ii) You will pay tax on the rent (less expenses) at 40% and deduct the interest at 20%, so your net earnings will be maybe £1,000 * 85% * 60% + (£130,000 * 4% /12 * 20%) = about £600 before mortgage interest and principal? So you are £70 negative with your current interest rate and maybe £170 negative if they increase it.
NickCQ said:
supercommuter said:
My remaining mortgage is £130k on my current home
Current monthly payments are about £670
Rent would be about £975/£1000 a month
Would i get taxed on the rent, if so what rate? Would i end up making a loss?
(i) That monthly payment may go up when you get 'consent to let' from your existing bank. If they add 100 bps to your interest rate that's £110 / monthCurrent monthly payments are about £670
Rent would be about £975/£1000 a month
Would i get taxed on the rent, if so what rate? Would i end up making a loss?
(ii) You will pay tax on the rent (less expenses) at 40% and deduct the interest at 20%, so your net earnings will be maybe £1,000 * 85% * 60% + (£130,000 * 4% /12 * 20%) = about £600 before mortgage interest and principal? So you are £70 negative with your current interest rate and maybe £170 negative if they increase it.
I have about £140k equity in the house which would be helpful with the new house! I was just wondering if I could keep it for a tiny profit or break even. This is without expenses like things breaking, landlord insurance and agency fees. I don't really see the sense in keeping it!
supercommuter said:
So sell the house basically
I have about £140k equity in the house which would be helpful with the new house! I was just wondering if I could keep it for a tiny profit or break even. This is without expenses like things breaking, landlord insurance and agency fees. I don't really see the sense in keeping it!
Plus any void periods or costs to evict non paying tenants (should you be unfortunate to have them) can run into £1000'sI have about £140k equity in the house which would be helpful with the new house! I was just wondering if I could keep it for a tiny profit or break even. This is without expenses like things breaking, landlord insurance and agency fees. I don't really see the sense in keeping it!
Have a google of beneficial interest and trust declaration. Link below may help.
http://www.taxlandlord.com/tax-saving-trust-declar...
I was in the exact same position. You can gift a % of the property to a spouse or partner, make a statement that all income from the property is for their use only, and save 20% income tax if you are a high rate payer and they aren’t. It may depend on how your current property is owned, joint names, single, mortgaged or not, I can’t recall now. Worth a look though.
http://www.taxlandlord.com/tax-saving-trust-declar...
I was in the exact same position. You can gift a % of the property to a spouse or partner, make a statement that all income from the property is for their use only, and save 20% income tax if you are a high rate payer and they aren’t. It may depend on how your current property is owned, joint names, single, mortgaged or not, I can’t recall now. Worth a look though.
Newky Brown said:
Have a google of beneficial interest and trust declaration. Link below may help.
http://www.taxlandlord.com/tax-saving-trust-declar...
I was in the exact same position. You can gift a % of the property to a spouse or partner, make a statement that all income from the property is for their use only, and save 20% income tax if you are a high rate payer and they aren’t. It may depend on how your current property is owned, joint names, single, mortgaged or not, I can’t recall now. Worth a look though.
Thanks, will take a look. For reference I own the current property all in my name. Both in our twenties with no dependents. http://www.taxlandlord.com/tax-saving-trust-declar...
I was in the exact same position. You can gift a % of the property to a spouse or partner, make a statement that all income from the property is for their use only, and save 20% income tax if you are a high rate payer and they aren’t. It may depend on how your current property is owned, joint names, single, mortgaged or not, I can’t recall now. Worth a look though.
If the maths means that you're not making anything then its not worth the bother TBH. If something happens like a boiler failing you wont have built up a slush fund from the house profits which soon grates.
We were accidental landlords and we did ok out of it due to the increase in house prices which was 3 times the amount of capital we paid off in 8 years. I probably would have done it again be we escaped the extra stamp duty and the changes in interest being a deductible expense. I feel we got out at the right time due to further changes to capital gains tax on rental property looming.
We were accidental landlords and we did ok out of it due to the increase in house prices which was 3 times the amount of capital we paid off in 8 years. I probably would have done it again be we escaped the extra stamp duty and the changes in interest being a deductible expense. I feel we got out at the right time due to further changes to capital gains tax on rental property looming.
dai1983 said:
If the maths means that you're not making anything then its not worth the bother TBH. If something happens like a boiler failing you wont have built up a slush fund from the house profits which soon grates.
We were accidental landlords and we did ok out of it due to the increase in house prices which was 3 times the amount of capital we paid off in 8 years. I probably would have done it again be we escaped the extra stamp duty and the changes in interest being a deductible expense. I feel we got out at the right time due to further changes to capital gains tax on rental property looming.
Yep, the additional stamp duty on my new house is a killer. If i did not have to pay it i would deffo keep the house even if proffit was very low as someone would be paying the mortgage off.We were accidental landlords and we did ok out of it due to the increase in house prices which was 3 times the amount of capital we paid off in 8 years. I probably would have done it again be we escaped the extra stamp duty and the changes in interest being a deductible expense. I feel we got out at the right time due to further changes to capital gains tax on rental property looming.
My current home is a new build as well and has warranty left on everything so would be perfect candidate for a let!
We were in a very similar position just over 3 years ago. (so just missed the new SDLT rules)
Worked out ok but honestly don't think it was really worth it. We probably made about £5k a year on £12k rental income once all was said and done. A lot of stress and hassle for not a lot of return.
Its since sold and the equity was just enough to pay off the mortgage on the new place, so like I said worked out ok as we are now mortgage free as the value of the old place crept up whilst we spent 3 years paying down the mortgage on the new so we got to the point where we thought it was worth taking the equity out and putting it into the new one, IYSWIM.
So now we save about £6.5k in interest a year so in my mind we are actually better off and no stress and hassle. Also we no longer have 2 mortgages hanging over us.
Worked out ok but honestly don't think it was really worth it. We probably made about £5k a year on £12k rental income once all was said and done. A lot of stress and hassle for not a lot of return.
Its since sold and the equity was just enough to pay off the mortgage on the new place, so like I said worked out ok as we are now mortgage free as the value of the old place crept up whilst we spent 3 years paying down the mortgage on the new so we got to the point where we thought it was worth taking the equity out and putting it into the new one, IYSWIM.
So now we save about £6.5k in interest a year so in my mind we are actually better off and no stress and hassle. Also we no longer have 2 mortgages hanging over us.
supercommuter said:
Yep, the additional stamp duty on my new house is a killer. If i did not have to pay it i would deffo keep the house even if proffit was very low as someone would be paying the mortgage off.
Have a look at the new capital gains rules. Due to the removal of letting relief alone our resulting bill would have eclipsed any additional stamp dutyWe were in the same position and managed to find a but to let mortgage with exit fee of only coupe of hundred quid.
We didn't rent it out, just sucked up the payments. Luckily it sold after a month. But when I worked out the risk, to get the house we really wanted, it wasn't too bad.
If your mortgage is 600ish, then I think interest only would be about 300 month. So if it takes you a year to sell, it would be less than £4k cost. Not much in the context of a mortgage term!
We didn't rent it out, just sucked up the payments. Luckily it sold after a month. But when I worked out the risk, to get the house we really wanted, it wasn't too bad.
If your mortgage is 600ish, then I think interest only would be about 300 month. So if it takes you a year to sell, it would be less than £4k cost. Not much in the context of a mortgage term!
covmutley said:
We were in the same position and managed to find a but to let mortgage with exit fee of only coupe of hundred quid.
We didn't rent it out, just sucked up the payments. Luckily it sold after a month. But when I worked out the risk, to get the house we really wanted, it wasn't too bad.
If your mortgage is 600ish, then I think interest only would be about 300 month. So if it takes you a year to sell, it would be less than £4k cost. Not much in the context of a mortgage term!
This is very true. I am going to suck it up and start proceeding on the new house today and leave this one to sell. Not going to bother renting. My interest is £267 a month, so you are not far off We didn't rent it out, just sucked up the payments. Luckily it sold after a month. But when I worked out the risk, to get the house we really wanted, it wasn't too bad.
If your mortgage is 600ish, then I think interest only would be about 300 month. So if it takes you a year to sell, it would be less than £4k cost. Not much in the context of a mortgage term!
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