I think i might be about to become an accidental landlord

[supercommuter]

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!

[supercommuter]

Joey Deacon said:

Don't forget you will have to pay secondary stamp duty on the house you are buying due to it being a second home.

Yep, it is a hard pill to swallow but i have factored that in with my cash. That said, i can claim it back if i sell my house in 3 years i believe.

[supercommuter]

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 / month

(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.

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!

[supercommuter]

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.

[supercommuter]

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.

My current home is a new build as well and has warranty left on everything so would be perfect candidate for a let!

[supercommuter]

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