Let-to-Buy - What should I be aware of? Help!

[sentry1]

Hi All,

I'm a newbie on this forum and will be a newbie landlord.

My wife and I are going to get a further advance on the mortgage on our current flat, let it out and move to a bigger property.

I have agreements in principle for the mortgages (I will convert the current mortgage on the flat into a BTL and change it to interest only) and have put in an offer on the new house.

I am going to get a tax adviser asap (once I find one!) but in the meantime I had a few questions regarding tax.

I realise that any profit we make is taxable (and as I am higher rate I guess it will be taxable at 40%) and that there are many deductible costs involved but are there other things I should be aware of in terms of taxation? Are there things I can do before letting the property to minimise CGT on sale?

Any help and advice would be much appreciated (including advice about how to find a good tax adviser!)

Thanks v much in advance.

[Telometer]

1. You still live in your current flat which belongs to you?

2. To whom does it belong - you/you and wife/wife?

[theartfullodger]

Are there things I can do before letting the property to minimise CGT on sale?

The re-mortgage will get you a valuation that can be used as the start-point for any CGT calculations, depending on whatever the rules are for CGT as & when you/your estate sells it.. . I wonder if other valuations from local estate agents (perhaps the one you are buying through who might be "keen") would give the same or a higher value?? They'd all have to be legit, obviously...

PS Anyone who tells you they know how CGT will be treated in future ain't smoking tobacco...

[sentry1]

Hi and thanks for your replies.

We are both named on the mortgage and on the leasehold for the flat.

We have a chartered survayors valuation from 2008 and this is what the broker from the mortgage lender says he will use to value the property (or at least, base the estimated value today on).

Any tips on this basis?

[jeffrey]

Oo, er: a leasehold flat. Read the lease carefully, in case it prohibits/restricts subletting.

[Telometer]

The re-mortgage will get you a valuation that can be used as the start-point for any CGT calculations,

Not so. Whatever you're smoking isn't tobacco. There is no need to undertake any valuation for CGT purposes. Actual consideration will be the deciding factor.

You are sensible to keep it in joint names, so as to benefit from maximum CGT relief on eventual sale.

At what rate does your wife pay income tax?
The value when first let is important for ascertaining the quantum of loan in respect of which interest payments are deductible. For this, take estate agent's valuation (ask 3 and take the middle/average - if this is ever the subject of an HMRC inquiry you would have to obtain a proper surveyor's retrospective valuation) then add notional SDLT and notional acquisition fees.

[sentry1]

Telometer - thank you very much for that. My wife is a higher rate taxpayer too.

"The value when first let is important for ascertaining the quantum of loan in respect of which interest payments are deductible."

I'm converting the mortgage to interest only - surely the whole of the monthly mortgage amount is deductible when considering income tax? No?

"For this, take estate agent's valuation (ask 3 and take the middle/average - if this is ever the subject of an HMRC inquiry you would have to obtain a proper surveyor's retrospective valuation) then add notional SDLT and notional acquisition fees."


A- Why would I need to roughly estimate the value? Do I not simply deduct the interest only mortgage amount (plus other deductible expenses) from the rental income and then pay tax on the remainder?
B- What is SDLT?
C- Are we talking income tax considerations here or CGT?

Thanks!

[Gordon999]

Under present rules, you can sell your existing flat ( now owner occupied ) within 3 years from the date you move out - without any liability to CGT.

If you decide to let the property beyond the "3 year period" , you can gain further letting allowance of 40K ( each if in joint names ) before the apportioned profit beomes payable for CGT. So liability to CGT is not really a problem to worry about for next 5-6 years if you decide to keep the flat and let .

Is you flat in a location easy for letting ? If you get a 70% BTL mortgage, does the rent cover all the monthly interest payment and service charges etc ?? Do your sums .

What you should be looking at is the future trend of property prices. Use google search for " Capital economics + house prices ".

[Telometer]

"The value when first let is important for ascertaining the quantum of loan in respect of which interest payments are deductible."

I'm converting the mortgage to interest only - surely the whole of the monthly mortgage amount is deductible when considering income tax? No?

ONLY if the mortgage is for less than 100% of the value of the property when it is first let out. This is an income tax consideration. If you are in negative equity, then the negative equity part of the loan is not tax deductible. Equally, if in future years the value of the property goes up and you remortgage to get more cash out, then any loan in excess of the value of the property when first let is not tax deductible.

[sentry1]

Hi All,

"Oo, er: a leasehold flat. Read the lease carefully, in case it prohibits/restricts subletting."

I extended the lease recently and there is no clause preventing me from letting it out.

The mortgage is 75% of the value of the property.

The flat is in an easy area for letting in SW London.

This is an V long term investment for my wife and I. The rental will cover more than 125% of the mortgage and we will be saving the net difference to put towards upkeep/emergencies etc.

We are thinking of managing the property and finding tenants through work. Do people out there have experience of this? With only one property in our portfolio I think this will be manageable. Thoughts?

Thanks again!