My Future: BTL's and Investments.
Discussion
Hi all!
To start with I am 22, almost graduated from my final year at University and looking to start work in september once I return from America from doing work over the summer. For some odd reason I have always been interested in property, Strictly BTL's.
My Situation. - Once I start work, I hope to be earning around £1500 PCM after tax. (Possibly ambitious, but hopeful) - - When I am 25 I am in an extremely fortunate position whereby I have inheritance of £37,000
With my £1500 PCM I hope to save £400 a month strictly to go towards my property ambitions.
Now, my mum owns a one bedroom flat in East Croydon (Just outside of london) which she currently lets. The properties value is around £160,000, with £40,000 equity in it. With renovations we're confident the value would reach around £180,000 (It's in a bit of a state) It has always rented since she bought it 12 years ago, and its 5 minutes walk from the main train station, with good connections to Central London.
With the £37,000 that I will receive, my mum wants £30,000 of it to pay a mortgage off on a property she owns in Durham, and in return, she will give me her property in East Croydon. This makes all kinds of sense to me as It would give me a foot onto the housing ladder and I will have substantial equity in the Property. I realise I am in an incredibly fortunate position. My family is not extremely well off, however, my mum has planned for my future which I am incredibly grateful for. I am under no illusions
The money I have saved up until I am 25, should be around the £10,000 Mark. With the £7,000 I have left from the £37,00 thats a more than a 25% deposit on a £60,000 house in Durham. I would invest in Durham as its a good university town, with cheaper houses then down south, and my mum has experience of investing there.
Once I move into the East Croydon flat, my plan is to live in one room and rent out the other thus essentially removing any rent or mortgage costs from me. Ill be essentially living somewhere for free (not including bills) - This again will help me save that £400 PCM. Along with the money I save, and the rental income I would get from my first investment in Durham i would hope to then save around £600 PCM thus allowing the next rental investment to come sooner and so on and so forth.
I know planning like this is not taking into consideration life events that may take place, but I really want to set my self up for the future. My lives ambitious has always been to own 10 properties
- And in my 40's and onwards I want to be able to drive the nice cars and own the nice houses that I have lusted over since I was a boy.
I would just like peoples opinions of my 'plan'. And ways I can invest my savings to maximise my return with minimal risks. Or even just the best savings account to go for etc.. Does this seem like a good plan? does it have legs? or do I have my head in the clouds?
I would love to hear your opinions.
Many Thanks
Joemp
To start with I am 22, almost graduated from my final year at University and looking to start work in september once I return from America from doing work over the summer. For some odd reason I have always been interested in property, Strictly BTL's.
My Situation. - Once I start work, I hope to be earning around £1500 PCM after tax. (Possibly ambitious, but hopeful) - - When I am 25 I am in an extremely fortunate position whereby I have inheritance of £37,000
With my £1500 PCM I hope to save £400 a month strictly to go towards my property ambitions.
Now, my mum owns a one bedroom flat in East Croydon (Just outside of london) which she currently lets. The properties value is around £160,000, with £40,000 equity in it. With renovations we're confident the value would reach around £180,000 (It's in a bit of a state) It has always rented since she bought it 12 years ago, and its 5 minutes walk from the main train station, with good connections to Central London.
With the £37,000 that I will receive, my mum wants £30,000 of it to pay a mortgage off on a property she owns in Durham, and in return, she will give me her property in East Croydon. This makes all kinds of sense to me as It would give me a foot onto the housing ladder and I will have substantial equity in the Property. I realise I am in an incredibly fortunate position. My family is not extremely well off, however, my mum has planned for my future which I am incredibly grateful for. I am under no illusions
The money I have saved up until I am 25, should be around the £10,000 Mark. With the £7,000 I have left from the £37,00 thats a more than a 25% deposit on a £60,000 house in Durham. I would invest in Durham as its a good university town, with cheaper houses then down south, and my mum has experience of investing there.
Once I move into the East Croydon flat, my plan is to live in one room and rent out the other thus essentially removing any rent or mortgage costs from me. Ill be essentially living somewhere for free (not including bills) - This again will help me save that £400 PCM. Along with the money I save, and the rental income I would get from my first investment in Durham i would hope to then save around £600 PCM thus allowing the next rental investment to come sooner and so on and so forth.
I know planning like this is not taking into consideration life events that may take place, but I really want to set my self up for the future. My lives ambitious has always been to own 10 properties
- And in my 40's and onwards I want to be able to drive the nice cars and own the nice houses that I have lusted over since I was a boy. I would just like peoples opinions of my 'plan'. And ways I can invest my savings to maximise my return with minimal risks. Or even just the best savings account to go for etc.. Does this seem like a good plan? does it have legs? or do I have my head in the clouds?
I would love to hear your opinions.
Many Thanks
Joemp
Thanks for the advice! - I vaguely remember our accountant talking about 'gifting' her the money? - Don't know the implications of that. - At the moment, I wouldn't own the property, I would keep it on her mortgage as it is a cheap fixed rate mortgage, to keep the costs down. I would eventually own the property legally once i could afford to take over the mortgage.
Joemp said:
Thanks for the advice! - I vaguely remember our accountant talking about 'gifting' her the money? - Don't know the implications of that. - At the moment, I wouldn't own the property, I would keep it on her mortgage as it is a cheap fixed rate mortgage, to keep the costs down. I would eventually own the property legally once i could afford to take over the mortgage.
From what you have told us there will be a capital gains liability against your mother with regard to the flat being "sold" to you.HMRC will asses the gain as being about £40k. This is the sales price of £160k (deemed to be market value at time of sale as not an arm's length deal) less purchase price of £120k (I assume it was £120k as you said she has £40k equity with a the current market value of £160k). As she's never lived there will be no main residence or letting reliefs available. She can reduce the taxable gain by her annual CGT allowance, currently £11k, leaving a gain of about £29k. This will be taxed at 18% or 28% depending on her overall tax rate for income tax, so she could have a tax charge of between £5k and £8k.
However, from the gain of about £29k she can deduct costs in acquiring and selling the property. She can also deduct any money spent on improving the property, such as new bathroom/kitchen. However, these costs can't be used for the CGT calculation if she has already claimed them in some way through the letting business.
Plus, if you renovate the property after you get it the costs allowed under CGT do not include things such as decorating/repairing the flat. Only those costs which improve the flat are allowed.
With regard to gifting her the £30k, I can't see any tax implications. The gift would only attract Inheritance Tax if you were to die within 7 years and your estate after any debts at time of death exceeds £325k. From what you have said your estate would not appear to exceed this value.
With regard to the existing mortgage, if it is a BTL mortgage, then you would have to let the lender know you have moved in unless you are going rent it from your mother until you can "buy" it.
Having said all that, what with your plans to buy an investment property in Durham I strongly suggest you get a good tax adviser who should be able to come up with the best tax strategy for your plans. For instance it might be tax efficient for you to renovate the property after you buy it so as to keep your mother's deemed sale price down and thus reduce CGT. But without knowing how much the renovation is expected to cost it is not possible to estimate any tax advantages.
Ginge R said:
If that is you, I'm thinking you scrub up well Ginge R said:
Let me see - tax breaks help rich people buy BTLs so that poor people can rent them and thus help the housing shortage?Of course in reality they default on the rent and get thrown back out on the street but you get the idea...
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