Letting out your house...

[berg]

Anyone done this who can advise of their experience?

Need a bigger house but dont necessarily want to sell my 3 bed mid terrace. Thought would be good to keep to give to children when they need a house in 20-25 years time.

But am not sure the figues will work for eg - £575-600pcm will be achievable. If I then pay 40% tax on that and I want a letting agent to do all donkey work I will be losing 52-55%. Mortgage provider has also said will put % rate up by 1.5% after tenants been in for 6 months, then buildings insurance may increase and also might need to take out landlords insurance to cover for any tenants getting off in the middle of the night and leaving no rent. So not sure would have enough left to cover mortgage.

On top of all this if did decide to sell in a few years would get clobbered by capital gains tax at 18 or 28% is it?

So am back to thinking would be best off maybe just staying as long as I can, make few overpayments to increase equity and then sell it and move in with mother and father in law whilst buy another house and get best deal as wont be in a chain and will have cash deposit again.

Anyone had similiar dilemma? Thanks.

[Deako]

You only need to pay tax on anything over £350??? per month. However, realisitcally, how many people EVER declare this?

[garrardrj]

I would suggest renting privately to someone you know who is paying rent already . Do them a deal and get payments in cash 

[MC71]

You only need to pay tax on anything over £350??? per month. However, realisitcally, how many people EVER declare this?

What's the penalty for non declaration though? Can't see HMRC going easy if its found out.

I'd stay where you are until you decide to move, while making the overpayments or use the overpayment money as a deposit on a second property.

Then buy a 2 bed mid terrace (or similar starter home) on a buy to let and as long as it can cover its own costs for the next 20 odd years (along with paying the repayment) then you'll have a fully paid home when its needed for the offspring.

[Deako]

You only need to pay tax on anything over £350??? per month. However, realisitcally, how many people EVER declare this?

What's the penalty for non declaration though? Can't see HMRC going easy if its found out.

I'd stay where you are until you decide to move, while making the overpayments or use the overpayment money as a deposit on a second property.

Then buy a 2 bed mid terrace (or similar starter home) on a buy to let and as long as it can cover its own costs for the next 20 odd years (along with paying the repayment) then you'll have a fully paid home when its needed for the offspring.

How would HMRC find out? Its not like there are billions of bank transactions going on every day to check. I doubt your bank would grass you in. It comes in as rent from the letting agents, and literally straight away goes out in mortgage payments.

[Tamiyoman]

As I understand it you will only pay Tax (at your current rate) on the profit from renting your house.

So if your renting for 600pm and your mortgage is 450pm you will only pay tax on 150pm, you will however be liable for capital gains tax on the sale of the property as it is no longer your "Main home/residence" but is an investment property or second home.

You will also get to deduct any associated costs (maintenance/insurance) from your gross profit to give you a net taxable figure.

So mortgage is 450pm and your getting 600pm difference is 150pm (1800pa), lets say maintenance costs and insurance costs are 50pm (600pa) you will only pay tax on 1200pa at your current taxable rate (40%).

Bottom line is you will need to have boiler serviced and certified once per year as a landlord (£150), insure the property as a landlord (Direct line offering to beat any quote currently) and maintain the property (re-decorating, fixing any issues etc, new kitchens/bathrooms etc) you will soon use up the "Taxable" imcome and thus leave no tax to pay (install a new bathroom or kitchen and there goes 3-4 years worth of taxable income  

[Poverty]

rent it to the council under one of those deals where your rent gets paid even if no ones living there, and if they trash the place the council put it right.

Being a private landlord can be a major headache, especially if tenants stop paying their bills, which appears to be happening more and more often by what landlords are telling me. Also alot of landlords looking to get out of the game as its not the easy money they thought it would be.

[Tamiyoman]

My mate is a landlord (has 3 properties) and his mum has 6 properties and they use a letting agent who take 15-20%, but they sort all issues/deposits/rent etc, pretty much leaving them to a bank deposit each month, my mate is a gas-safe engineer and certifies his/his mums properties and via the letting agent gets quite a lot of business certifying other landlords properties.

[berg]

As I understand it you will only pay Tax (at your current rate) on the profit from renting your house.

So if your renting for 600pm and your mortgage is 450pm you will only pay tax on 150pm, you will however be liable for capital gains tax on the sale of the property as it is no longer your "Main home/residence" but is an investment property or second home.

You will also get to deduct any associated costs (maintenance/insurance) from your gross profit to give you a net taxable figure.

So mortgage is 450pm and your getting 600pm difference is 150pm (1800pa), lets say maintenance costs and insurance costs are 50pm (600pa) you will only pay tax on 1200pa at your current taxable rate (40%).

Bottom line is you will need to have boiler serviced and certified once per year as a landlord (£150), insure the property as a landlord (Direct line offering to beat any quote currently) and maintain the property (re-decorating, fixing any issues etc, new kitchens/bathrooms etc) you will soon use up the "Taxable" imcome and thus leave no tax to pay (install a new bathroom or kitchen and there goes 3-4 years worth of taxable income  

Thanks for that. So in your opinion, based on that you wont make any money but as long as outgoings (inc the mortgage) are covered it could still be worth it long term but that long term literally is in 20 years time as there wont be a quick buck to be made in the meantime.

[Tamiyoman]

Unless your mortgage is very small or you own the property outright your not gonna make much money on it now, its a long term venture for capital increase on the value (Future sale value).

As a landlord you want a property that you can buy with a mortgage and rent easily and also to make sure the rental covers the mortgage and gives you some money left over (Yield), if your getting 4-8% yield your doing ok, anything over that your doing well, plus long term you have possibility for increased property value, As we all know values on properties can go down (It happened already!), but as someone is paying it for you anyway your still not losing out!

The way you look at it is someone else is paying your mortgage and giving you the "Chance" of increased sale value in the future plus also paying your debt on the property, so nto effectively costing you money, plus when the mortgage is paid your making money on it then with rental income.

Had a client year back who had over 400 properties, made very little in the way of profit at the time (he used the excess income to re-decorate/new bathroom/kitchens etc to increase value of properties and keep them looking nice for tenants (nice looking/well fitted out properties rent quicker/easier), he will make some serious money in another 15 years when he retires and mortgages are paid off, all rental income is profit then, but he will be clobbered for capital gains on sale of them (although someone else has paid for them really so he did not see it as an issue paying 20-30% of his profit in tax)..............

Got a couple of my mates doing property development currently, aside from their full time jobs (Both single and live at home with parents), they do 2 properties each a year on average (1 of them will do 3 houses this year), its their only house so no capital gains to pay, another 3 years and one of them reckons he will have enough to buy his own place outright (cash purchase), not bad for a 26 year old    something I should have done myself!

If I was doing it myself I would ensure mortgages were paid off when I am ready for retiring and use the income as part of my pension, if you have several properties you can always sell off one or 2 to give you that "lump sum" to buy a boat/nice car/retirement home etc

Someone else mentioned the council letting it, housing companies do this too, you get less back but you do get guaranteed monthly income, its all risk and what your prepared to do.

[WolverineMAc]

Capital Gains Tax, not much of an issue, as it was your Private Residence and then rented out, you are currently also entiled to letting relief of up to £40,000 in addition to the Private Residence Relief for the period you lived in the property.

I know of people that have been found out by HMRC, by them simply running a land registery search.

[berg]

yeah, the future sale value would be the long term interest. guess it also depends how far looking to stretch with new house as may need 100% of the equity for deposit on new place but was thinking of trying to move up to a 4 bed semi not a 4 bed detached.

wolverine, can you expand a little bit more on this "letting relief?"

Thanks.

[WolverineMAc]

Where a capital gain accrues to an individual and the dwelling-house in question, or any part of it, is or has at any time in his 'period of ownership' been wholly or partly let by him as residential accommodation, the part of the gain, if any, which otherwise would be a chargeable gain by reason of the letting is exempt to the extent of the lower of:

(a) £40,000; and

(b) the principal private residence relief on that property.

Note that the exemption applies to gains arising both from a residential letting of the entire residence whilst the owner is not occupying the property and to a partial residential letting whilst the owner is in residence.

HMRC Example
You used 60 per cent of your house as your home and let out the other 40 per cent.

You sell the property, making a gain of £60,000.

You're entitled to Private Residence Relief of £36,000 on the part used as your home (60 per cent of the £60,000 gain).

The remaining gain on the part of your home that's been let is £24,000.

The maximum Letting Relief due is £24,000 as this is the lower of:
•   £40,000
•   £36,000 (the Private Residence Relief due)
•   £24,000 (the gain on the part of the property that's been let)
There's no Capital Gains Tax to pay - the gain of £60,000 is covered by the £36,000 Private Residence Relief and the £24,000 Letting Relief.

[paulw123]

How about renting to uni students. My daughter & her 3 mates have paid about £17,500 a year in rent in Canterbury, ex council house, right tip really. Letting agent is trying to keep their £1600 deposit saying they didn't; clean it good enough, cut the bushes & trees. They weren't invited to the exit inspection, so not sure how they can prove what. Best one was that a bedroom carpet had a burn & needed replacing, looked on the original tenants check & it was burnt when they moved in!!! wonder how many times that carpet has been paid for & never replaced........

[berg]

Where a capital gain accrues to an individual and the dwelling-house in question, or any part of it, is or has at any time in his 'period of ownership' been wholly or partly let by him as residential accommodation, the part of the gain, if any, which otherwise would be a chargeable gain by reason of the letting is exempt to the extent of the lower of:

(a) £40,000; and

(b) the principal private residence relief on that property.

Note that the exemption applies to gains arising both from a residential letting of the entire residence whilst the owner is not occupying the property and to a partial residential letting whilst the owner is in residence.

HMRC Example
You used 60 per cent of your house as your home and let out the other 40 per cent.

You sell the property, making a gain of £60,000.

You're entitled to Private Residence Relief of £36,000 on the part used as your home (60 per cent of the £60,000 gain).

The remaining gain on the part of your home that's been let is £24,000.

The maximum Letting Relief due is £24,000 as this is the lower of:
•   £40,000
•   £36,000 (the Private Residence Relief due)
•   £24,000 (the gain on the part of the property that's been let)
There's no Capital Gains Tax to pay - the gain of £60,000 is covered by the £36,000 Private Residence Relief and the £24,000 Letting Relief.

ah i see, interesting stuff, thanks