Buying Property To Let

[davd]

I am considering buying a flat or house to let out,for the next 10 or 15 years and then either live in it or sell it to give me a pension . At the moment i live in at the job i do
Would i be liable for CGT if i made a large profit on selling [eg £100000}
Also would it be better financially to take a mortgage on a part of the purchase price to set against rental income or to pay all of it cash and save on mortgage interest

[Tax Accountant]

I am considering buying a flat or house to let out,for the next 10 or 15 years and then either live in it or sell it to give me a pension . At the moment i live in at the job i do
Would i be liable for CGT if i made a large profit on selling [eg £100000}
Also would it be better financially to take a mortgage on a part of the purchase price to set against rental income or to pay all of it cash and save on mortgage interest

(1) If I say that you will pay CGT of say £20,000, would you rather not make the £100,000 gain at all to save £20,000 tax? Investment decisions should not always be decided by tax consequences.

If you live in a job-related accommodation which is necessary (as defined by law, eg a farmer or a publican or a soldier), you are allowed to own another house CGT-free provided you intend to occupy it as your only or main residence in due course.

(2) Whether to buy cash or with a mortgage is a personal decision depending on your personal circumstances.

If you do take a mortgage, you need to decide what use you have of the money in your hands. It is no use taking a mortgage at 6% and leaving your money in the bank at 3%. In that case you may as well buy without a mortgage.

One of the reasons for using as much mortgage as possible is that this enables you to spread your own money as deposits on a larger number of properties and thus be able to build up a portfolio rather than end up owning only one property.

Ramnik

[Worldlife]

(1) If I say that you will pay CGT of say £20,000, would you rather not make the £100,000 gain at all to save £20,000 tax? Investment decisions should not always be decided by tax consequences.<snip>
Ramnik

That's a good way of looking at the situation but should I be more aggressive?

Is it wise to keep a property long term or should one sell one the capital gains tax allowance reaches the maximum and use all ones capital gains tax free allowance in that year to offset the actual tax due?

Obviously one has the expenses of sales and repurchase (presumably tax deductable) but it gives the opportunity to remortgage and if necessary release more equity.

Is it feasible to restructure the ownership of the property and settle up the capital gains tax at a convenient point?

What if one were to sell the house to a dormant wholly owned Limited company and the company sell it back at the purchased price to the original owners after a month or so? Would this be legal and cost effectivek or are there better suggestions?

We are not getting tax relief on the whole of the mortgage we pay right now but could transfer the property to the Limited company free from mortgage.

Would the repurchase from the Limited company then enable a new and larger mortgage all of which would be tax deductable as a business expense?

[Tax Accountant]

That's a good way of looking at the situation but should I be more aggressive?

Is it wise to keep a property long term or should one sell one the capital gains tax allowance reaches the maximum and use all ones capital gains tax free allowance in that year to offset the actual tax due?

Obviously one has the expenses of sales and repurchase (presumably tax deductable) but it gives the opportunity to remortgage and if necessary release more equity.

Is it feasible to restructure the ownership of the property and settle up the capital gains tax at a convenient point?

What if one were to sell the house to a dormant wholly owned Limited company and the company sell it back at the purchased price to the original owners after a month or so? Would this be legal and cost effectivek or are there better suggestions?

We are not getting tax relief on the whole of the mortgage we pay right now but could transfer the property to the Limited company free from mortgage.

Would the repurchase from the Limited company then enable a new and larger mortgage all of which would be tax deductable as a business expense?

Hi,

You are seeking detailed tax planning and investment advice, which is a little beyond the scope of my replies here. Sorry.

Ramnik

[mitch46]

That's a good way of looking at the situation but should I be more aggressive?

Is it wise to keep a property long term or should one sell one the capital gains tax allowance reaches the maximum and use all ones capital gains tax free allowance in that year to offset the actual tax due?

Obviously one has the expenses of sales and repurchase (presumably tax deductable) but it gives the opportunity to remortgage and if necessary release more equity.

Is it feasible to restructure the ownership of the property and settle up the capital gains tax at a convenient point?

What if one were to sell the house to a dormant wholly owned Limited company and the company sell it back at the purchased price to the original owners after a month or so? Would this be legal and cost effectivek or are there better suggestions?

We are not getting tax relief on the whole of the mortgage we pay right now but could transfer the property to the Limited company free from mortgage.

Would the repurchase from the Limited company then enable a new and larger mortgage all of which would be tax deductable as a business expense?

If you intend to live in it before you sell it the gain (last 3 years or period in which you live in it) will not be subject to CGT as you will be able to claim Principal Property Relief (PPR). Best option!

However, if you are not going to live there then I believe you could indeed sell it to a ltd co at market value and take advantage of your Annual Exemption or 2 AE's if owned jointly, however, it is unlikely that you could sell it back to yourself as the revenue would more than likely deem the ltd to be a connected party. Any subsequent reorg of the ltd would more than likely incur CGT on the value of the company shares. Company would also be required to prepared acs etc and would not be deemed as dormant.

Finally, unless you need the income from rental it's best to borrow as much as possible so your interest on the loan matches the rental income, therefore no tax on rental income and you can use your capital elsewhere. Happy days.

[davd]

Thanks for the advice, I have a lump sum and i am not sure whether to leave it invested in the bank or to invest in a property. If i did buy to let and i did not move in at a later date but sold it to buy somewhere else to live would i still be liable for CGT as i would be using the initial sum plus any increase in value to fund buying my home

[Tax Accountant]

Thanks for the advice, I have a lump sum and i am not sure whether to leave it invested in the bank or to invest in a property. If i did buy to let and i did not move in at a later date but sold it to buy somewhere else to live would i still be liable for CGT as i would be using the initial sum plus any increase in value to fund buying my home

Yes, unless you are prevented from living at the property due to the necessity to live in a job-related accommodation such as Army, publican, farmer etc.

Subject to the above, occupation of property as your home is a must to obtain PPR relief.

But as I said before, would you rather not make £100,000 gain to save £20,000 tax, not to mention rental income in the meantime?

Ramnik

[helen/1]

Make sure you dont buy a property where SIMARC collect the ground rent! I am a landlord & I would sell my properties at either the price I bought them or less. Would not want to give the taxman more money than necessary !!!

[helen/1]

I would definitely invest the money in a good rate savings account. I am a landlord. Given my time again, I would not be a landlord, but invest my money.

[Sad S]

I would definitely invest the money in a good rate savings account. I am a landlord. Given my time again, I would not be a landlord, but invest my money.

Tell us where to find a good rate savings account, then. Most of what you're saying doesn't stack up.

[jeffrey]

Make sure you dont buy a property where SIMARC collect the ground rent! I am a landlord & I would sell my properties at either the price I bought them or less. Would not want to give the taxman more money than necessary!
Best: freehold (not leasehold) house (not flat).