Rather than sell my flat, I intend to rent it out & get a seporate mortgage with my partner.

Ok, I know I have to tell my lender, who will up the rate a bit, but what else must I be aware of? Do I pay tax on the earnings, if so, how much, do I get tax relief on the interest portion of the mortgage, etc.....

Cheers

Matt.

 

Monies recieved through rent are classed as income and therfore taxable, however you recieve tax relief on any interest you pay on the mortgage. To find out how much interest you have paid, your lender will issue you a MIRAS 5 certificate which states the amount over the previous financial year.

ANY costs incurred to yourself relating to the property (eg maintainence, advertising the property, letting agency fees, buildings insurance etc) are tax deductable. Improvements to the property (eg fitting a conservatory or double glazing) are generally not. The best thing is to discuss with your accountant.

 

I'm in the same boat.

Not sure about the tax bit, but there are 2 things.

1. Your current lender shouldn't have a problem with you letting your flat rather than you living there. there will be a few conditions, usually they want you to use an approved letting agent, also they prefer the mortgage payment to be 80% or less of the rent. Most buy to let mortgages are 25% min deposit although you can get 20%, so if your original deposit was 5% there may be an issue but I'd wager your property has increased in value to the tune that your LTV (loan to value) has decreased sufficiently.

2. You and your partner can get a 'Let to Buy' mgge which basically is tailored for what you are doing. The best bit is the deposit is not as high as a 'buy to let' - Nationwide have got a 90% LTV discounted rate with no tie ins at the mo, again they will state that your rental property meets the points raised above (although most of these points are negotiable).

Good luck, and speak to a good independent mgge advisor. Most estate agents offer free advice, but some are less 'independent' than others

Justin

 

On the subject of buy to let - what's the Capital Gains Tax position? It's obviously not an issue if you live in the property but I'd assume it would apply if you sold a property which you'd been renting out. So if you buy a property and live in it for a while before renting it out do you need to get a valuation when you move out so as to set a "base value" for CGT when you eventually sell it - or would it be based on the price you originally paid?

<apologies for the hi-jack>

 

Matt,
I am an Independant Financial Advisor. As a company we do a lot of Buy to Let and Let to Buy mortgages.

E-mail me and i will give you my number. I will then be able to run thru the pro,s and cons of what you wish to do.

I have been doing this myself for the past 6 years so i have experience of the doing and not just the advising.

Tony

 

Re: CGT question - no valuations required. The gain is calculated as proceeds less original cost, less buying and selling costs. If you bought property before 5 April 1998 you get some relief for inflation up to that date. However, the resulting gain is time apportioned between periods when you lived in the house as your principal private residence (PPR)and periods when you didn't. The LAST THREE YEARS are always treated as exempt from CGT if you have at some point lived in the property. Hence, you own a property for 7 years. You live in it for the first three then let it out for 4 years before selling it. Only 1 year of the 7 (i.e. 1/7 of the gain) will be taxed, 6/7 will be tax free. There is then a further relief worth up to £40k to reduce the gain further but that one's a bit too complicated to explain here. Additionally, if you have owned the property for some time (I think 4 years +, haven't got my tables with me) then the gain is tapered at 5% per annum thereafter.

 

I think the £40k mentioned is what is known as a letting exemption. Basically this means that if the gain is less than £40k there will be no tax payable. If the gain is greater than £40k then the CGT will have to be calculated at the time of disposal. The letting exemption only applies to properties that have been your main residence but you it can be applied to all properties that fall into this catergory.

Tony

 

3times - almost right on the letting exemption but it can't be more than the principal private residence exemption. Thus, if your gain is £80,000 and only 3 out of 8 years qualify for PPR (£30,000)then the letting exemption is restricted to £30,000 also and thus £20,000 would be chargeable.