Buy to Let/Pension

[edition]

Hi,

I'm 26 a homeowner (mortgaged) and getting married soon. I don't currently have a pension (soon to be wife does) and the company that I work for does not run a pension plan (g/f's does).

I have been thinking of instead of getting a pension sorted manybe sort a buy to let... Any thoughts on wether this would be a half decent idea compaired to getting a pension?

Also what is the best way to run a b.t.l.? personally or start a business?


Thanks in Adavance!

[Eric Mc]

edition said:

Hi,

I'm 26 a homeowner (mortgaged) and getting married soon. I don't currently have a pension (soon to be wife does) and the company that I work for does not run a pension plan (g/f's does).

I have been thinking of instead of getting a pension sorted manybe sort a buy to let... Any thoughts on wether this would be a half decent idea compaired to getting a pension?

Also what is the best way to run a b.t.l.? personally or start a business?


Thanks in Adavance!

Buy to lets are NEVER treated as a business for tax purposes - unless the property is a UK holiday let (and even then the rules in this area are changing).

[edition]

Ok Eric, thanks for that! Just the kind of info I need!

[Eric Mc]

Inccome derived from rented properties is taxed under its own special rules. These rules used to be codeified under what was referred to as Schedule A.

Business income is taxed under the Business Tax rules, which used to be codefied under Schedule D.

Even though these "Schedule" titles aren't used by HMRC any more, the essential distinctive elements that categorise income into these schedules still exist.

Rental profits are subject to Income Tax (but not National Insurance).
Profits on the disposal of a rented profit will be subject to Gapital Gains Tax.

[edition]

The idea was not to make any profit now but get a free house after the mortgage period.....

Then have the choice of either selling or keeping it as a rental...

[Eric Mc]

Well, whether you make a profit on the ongoing rentals is down to how much you charge the tenants. At the end of the day, I would prefer to make a surplus on an economioc activity and pay whetever taxes are due on those surpluses rather than just meet the overheads or even make losses. One of the downsides of rental losses is that you don't have the flexibility to offset such losses agianst other income in the same tax years. Business losses CAN be utilised this way.

It has always been assumed that properties always rise in value over time which means that people look to the capital profit on disposal of the property as the end game for property investment, rather than annual returns in the guise of rental profits. I think that is a shortsighted view on such an investment.

[edition]

Hi,

Thanks for the reply.

Making a profit is easier said that done though. My plan would be to sort a deposit out and buy a circa £130k house and let it out. I would say roughly £500 - £550 P.C.M.

At a guess a buy to let mortgage would take that £500 up every month.....

[scotal]

What size deposit do you have in mind, edition?

[edition]

20k atm.......

[Eric Mc]

edition said:

Hi,

Thanks for the reply.

Making a profit is easier said that done though. My plan would be to sort a deposit out and buy a circa £130k house and let it out. I would say roughly £500 - £550 P.C.M.

At a guess a buy to let mortgage would take that £500 up every month.....

It's amazing how many people strive to prove that they HAVEN'T made an annual profit on their rental activities.

[scotal]

edition said:

20k atm.......

Not enough. Sorry to put it bluntly, but there arent any 85% BTL's around at mom.

You'll be looking at 75% LTV to get decent access to the market, more to get the best rates.
I think there is maybe 1 or 2 lenders available at 80% LTV

ETA and £550pcm rate doesnt work at 80%. You'd need at elast £600.

Edited by scotal on Thursday 9th September 16:53

[Mx_Stu]

Eric Mc said:

edition said:

Hi,

Thanks for the reply.

Making a profit is easier said that done though. My plan would be to sort a deposit out and buy a circa £130k house and let it out. I would say roughly £500 - £550 P.C.M.

At a guess a buy to let mortgage would take that £500 up every month.....

It's amazing how many people strive to prove that they HAVEN'T made an annual profit on their rental activities.

It amazes me that anyone would make a profit on rentals as its more efficient to re-mortgage up to 75% (from my understand the minimum BTL LTV required) of the value every time the mortgage comes up and use the capital to pay down a mortgage that you don't get tax relief on.

At 75% of £130k you are looking at a mortgage of £97,500 which at interest of say 5.5%, is £446 per month. If you are receiving £500 per month in rent you'll then lose about 4% (plus VAT, about £35) in agents fees leaving you with a profit of £19 before any repairs, insurances etc

Edited by Mx_Stu on Thursday 9th September 17:10

[edition]

hehe Thanks for the comments.

I can soon save some more ££ up i'm in no desparate rush atm.

It was just that I was thinking free house at end of the term and maybe seeing an increase in value or just keep it as a rental i own...

Sorry if i'm being too simplistic.

[Eric Mc]

Mx_Stu said:

Eric Mc said:

edition said:

Hi,

Thanks for the reply.

Making a profit is easier said that done though. My plan would be to sort a deposit out and buy a circa £130k house and let it out. I would say roughly £500 - £550 P.C.M.

At a guess a buy to let mortgage would take that £500 up every month.....

It's amazing how many people strive to prove that they HAVEN'T made an annual profit on their rental activities.

It amazes me that anyone would make a profit on rentals as its more efficient to re-mortgage up to 75% (from my understand the minimum BTL LTV required) of the value every time the mortgage comes up and use the capital to pay down a mortgage that you don't get tax relief on.

At 75% of £130k you are looking at a mortgage of £97,500 which at interest of say 5.5%, is £446 per month. If you are receiving £500 per month in rent you'll then lose about 4% (plus VAT, about £35) in agents fees leaving you with a profit of £19 before any repairs, insurances etc

Edited by Mx_Stu on Thursday 9th September 17:10

Why would you remortgage for a more expensive mortgage just to lower your tax bill. You still end up paying out more - only this time the money is going to the lender rather than George Osborne.
And you will always get tax relief on BTL mortgage interest - provided the interest is strictly related to borrowings necessary for the purchase or enhancement of the property generating the rental income against which you are offsetting the mortgage interest.

If you use the loan or part of the loan for some other BTL or something else altogether, then some or all of the interest charge will NOT be offsetable against that specific rental income.

[Mx_Stu]

Eric Mc said:

Mx_Stu said:

Eric Mc said:

edition said:

Hi,

Thanks for the reply.

Making a profit is easier said that done though. My plan would be to sort a deposit out and buy a circa £130k house and let it out. I would say roughly £500 - £550 P.C.M.

At a guess a buy to let mortgage would take that £500 up every month.....

It's amazing how many people strive to prove that they HAVEN'T made an annual profit on their rental activities.

It amazes me that anyone would make a profit on rentals as its more efficient to re-mortgage up to 75% (from my understand the minimum BTL LTV required) of the value every time the mortgage comes up and use the capital to pay down a mortgage that you don't get tax relief on.

At 75% of £130k you are looking at a mortgage of £97,500 which at interest of say 5.5%, is £446 per month. If you are receiving £500 per month in rent you'll then lose about 4% (plus VAT, about £35) in agents fees leaving you with a profit of £19 before any repairs, insurances etc

Edited by Mx_Stu on Thursday 9th September 17:10

Why would you remortgage for a more expensive mortgage just to lower your tax bill. You still end up paying out more - only this time the money is going to the lender rather than George Osborne.
And you will always get tax relief on BTL mortgage interest - provided the interest is strictly related to borrowings necessary for the purchase or enhancement of the property generating the rental income against which you are offsetting the mortgage interest.

If you use the loan or part of the loan for some other BTL or something else altogether, then some or all of the interest charge will NOT be offsetable against that specific rental income.

If you had another mortgage where you weren't getting tax relief on the interest (i.e. mortgage on you PPR) where the interest rate was equal to or greater than that being paid on the BTL mortgage why would you not take the equity from the BTL and reduce your monthly payments on your mortgage?

[Eric Mc]

Whataver borrowings you use to generate the tax claim, those borrowings MUST be related to a loan for the purpose of purchasing the buy to let property.

"Purpose" of the loan is everything when tax erelief is concerned.