Buy to Let [ sort of ]

[Bluebird]

Bit of advice required, I've got peed off with trying to sell my house, so have decided to rent it out for a while, whilst buying a big new shiny one.

From the point of view of my old property - am I better off renting that out as an individual [ I guess I pay income tax on any profit I make ] or am I better renting it out through a company [ only pay tax on profit, and claim back any VAT on fees incurred ].

Your thoughts please guys and gals.....

[Crossroads]

Personal.

If you sell the house to the company then you are looking at Stamp Duty, remortgaging etc.

You also get 3 years (IIRC) before incurring CGT on the sale of your (former) main residence.

[smalldog]

I have 8 BTL's. I used to put them through my own account until there got too many and I didnt want to start paying tax on profits. I setup a Ltd co. sometime ago and all the mortgages and rent go into that account. I wouldnt worry too much about paying tax on profits, if you get into BTL's you will have landlords insurance to pay which aint cheap, repairs and maintenance, accountants fees and if you have any profits left over after all that you can equip your office with PC's etc. Remember you can claim legitimate expenses against the Ltd co such as business mileage, fuel, travelling costs etc.

I mainly have the Ltd co so I can accumulate capital in the account until it reaches a sufficient level to be put towards buying another property. I dont make enough to get 15% together for the BTL deposit but even if its a couple of grand towards a deposit its better than nothing and reduces any profits for CT....

[Bumfluff]

Soz to hijack but I thinking about doing the same and renting my gaff out for around 12months. I never rented out and have a few questions,

1. Would I defo need a BTL mortgage if was to rent it out through an agency.

2. Do I have to tell the mortgage company.

3. In order to get landlords insurance would I need a BTL mortgage or have concent from my mortgage provider to rent the house out, would that be a term of the policy ?

4. I was told I would not have to pay tax on the rental income that was equal to the monthly interest on my mortgage is that correct, is it easy to put on your SA return ?


Cheers

[smalldog]

1 - no, speak to your mortgage company and inform them what you intend to do. They generally keep you on the same product but charge you an admin fee to register it as let

2 - formally yes, a lot of people dont tell their mortgage co. IF they find out they could potentially cancel your mortgage. Unlikely tho

3 - landlords insurance doesnt rely on a BTL mortgage.

4 - you dont pay tax if you dont make a profit. If your mortgage is the same or more than your rent you dont pay a bean as there is no gain

[Bluebird]

If you rent out a current property and inform Mort Co of same, when it comes to "remortgage time" - do you have to stick to BTL products ?

By the way, my Co said that I could keep the existing product as long as my LTV was under 80% - which was ok, but the product I originally took out had a LTV of 90%.

David

[smalldog]

If you rent out a current property and inform Mort Co of same, when it comes to "remortgage time" - do you have to stick to BTL products ?

By the way, my Co said that I could keep the existing product as long as my LTV was under 80% - which was ok, but the product I originally took out had a LTV of 90%.

David

It does largely depend on the mortgage companies own policies and how good your relationship is with them..There is no fixed rule and you will find that a number of BTL mortgages provide a drawdown facility where you can keep remortgaging upto 85% LTV on your existing product as long as your rental income meets their multiple rules. This is not usually the case with a non BTL product.

[ASB]

If you rent out a current property and inform Mort Co of same, when it comes to "remortgage time" - do you have to stick to BTL products ?

By the way, my Co said that I could keep the existing product as long as my LTV was under 80% - which was ok, but the product I originally took out had a LTV of 90%.

David

One problem you may have when mortgaging your "new" house (assuming you are) is that they will tend to want to combine both mortgages and simply add on the letting income (or a portion of it) to your income. This can mean you are looking at a larger earnings multiple on the new mortgage or restrict you choice of suppliers.

Regarding letting it through your company this doesn't mean your company have to own it (would generally be a bad move in most cases anyway). You can enter into a service contract with your company, or let it to your company, they then deal with the agents etc and reclaim the VAT on fees etc. Talk to the accountant.

[smalldog]

One problem you may have when mortgaging your "new" house (assuming you are) is that they will tend to want to combine both mortgages and simply add on the letting income (or a portion of it) to your income. This can mean you are looking at a larger earnings multiple on the new mortgage or restrict you choice of suppliers.

Regarding letting it through your company this doesn't mean your company have to own it (would generally be a bad move in most cases anyway). You can enter into a service contract with your company, or let it to your company, they then deal with the agents etc and reclaim the VAT on fees etc. Talk to the accountant.

Why is that a bad move? Its much better for a business to own the asset than personally, unless of course it was your home, and then you can rent it out for upto 3 years before you have to pay CGT on any profits from selling it. It does of course depend on your future plans, if you are trying to build a business and acquier more and more properties then business owned assets is the only way to go. If this is a one off then probably not worth it unless you will be making a lot of profit month on month from the diff between the rent and mortgage....

PS - Re landlords insurance you dont need it most of the time. Tenants are responsible for their own contents insurance. If you own a leasehold property then the service chg includes building insurance which will cover the cost of rebuilding the fabric of the propertry including things like kitchens/bathrooms etc. If its freehold then its a different story and you need Landlords buildings insurance as a minimum, upto you if you then want to topup with things like malicious damage etc...

[ASB]

Why is that a bad move? Its much better for a business to own the asset than personally, unless of course it was your home, and then you can rent it out for upto 3 years before you have to pay CGT on any profits from selling it. It does of course depend on your future plans

I can't find the relevant book, but there were some good reasons related to tax and finance costs where it was unlikely to be beneficial for corporate ownership over individual ownership unless it was intended to build a substantial property portfolio. There could also be potentially significant problems on disposal of the underlying property or emigration.