Buy to let - good idea?

[Showboat]

I’m going to jump in here.

I’m renting out my flat, what can I claim back from the tax man? I assume this I do via a self assessment. I understand there’s the mortgage interest?

Assume rental income £600 and mortgage £350 at 2.09%. I’m a basic rate payer.

They are phasing out the mortgage interest. I think last tax year was the last time you can claim it and that was only 50% of it.

You can claim all repairs, rates (Council tax?). Accountant. Rental fees. You can blag some other stuff like mileage and stationary.


OP what is the purchase cost and what is the monthly rent? If yield is less than 10% I’d avoid. Put you money where you don’t have to work for it (stocks)

 

[b0rn2sk8]

I’m going to jump in here.

I’m renting out my flat, what can I claim back from the tax man? I assume this I do via a self assessment. I understand there’s the mortgage interest?

Assume rental income £600 and mortgage £350 at 2.09%. I’m a basic rate payer.

You shouldn’t get financial advice from strangers on the internet. Particularly as the first reply above is inaccurate.

You can look at the guidance on gov.uk and do it yourself or get an accountant. The deadline for last years tax return has already passed too so you need to get it sorted ASAP if you need to file for last year.

 

[Showboat]

In what way was it inaccurate?

 

[b0rn2sk8]

Because you can still make deductions for finance costs. Its now more complicated and you have to calculate how much you can claim.

Some people now get a bigger tax bill because they can’t claim all of it as they did before but it depends on your specific circumstances.

 

[Quartz]

You're primarily looking at owning an appreciative asset at the end.

You hope.

 

[eidolon]

Can I also jump in here and ask a question?

If I’ve paid off my mortgage and choose to buy another property to rent out (purchase outright). Let’s say it rents out for £600 a month. Would tax be £2880 a year based on being a higher rate taxpayer? Am I correct in understanding that any rental income is basically seen as extra income and taxed at the same rate?

 

[dl8860]

Can I also jump in here and ask a question?

If I’ve paid off my mortgage and choose to buy another property to rent out (purchase outright). Let’s say it rents out for £600 a month. Would tax be £2880 a year based on being a higher rate taxpayer? Am I correct in understanding that any rental income is basically seen as extra income and taxed at the same rate?

Yep, there's no separate allowance, it goes directly on top of your current taxable income.

 

[wesley]

20 years ago yes maybe, but now....no, far too complicated

my dad has a rented house with BTL mortgage, he's getting much less income from the house than he originally thought. he had to pay £2000 for a new boiler last year, new back door (£400), new bathroom fitted etc etc

he'll get profit from the house when sell but have to pay the CG tax. he bought the house 15 years ago and the price gone up so thats ok

house price nowadays is making BTL renting unattractive

edit: you'd better off buying a wrecked house, doing it up to beautiful standard and sell. that's if DIY is your thing

 

[HungryHippos]

Yep wouldn't be getting a BTL on a mortgage, especially if you still have a mortgage on your own house, and even worse you need to release equity from that to do it.

Better off paying off more of your own mortgage, BTL could work but I think you really want a good cash deposit.

 

[Simon]

Need a decent deposit to meet the stress tests now. Rental income needs to be 145% of mortage if interest rates hit 4.5%

as said from April 2020 no mortgage relief on interest so you taxed on the full income minus anything you are allowed to offset (ground rent, estate agent fees, repairs, etc)

Quite different from pre 2016 when you could offset all mortgage interest and 10% of rent as ‘wear and tear’. Plus estate agents now charge higher landlord fees due to no longer being allowed to charge tenants the fees

 

[b0rn2sk8]

as said from April 2020 no mortgage relief on interest so you taxed on the full income minus anything you are allowed to offset (ground rent, estate agent fees, repairs, etc)

That’s not accurate as I have already posted. Wear and tear also only applied to furnished let’s which most aren’t. You can still make deductions to replace said furniture at the time it needs to be replaced.

That said I don’t disagree with your wider point, you certainly make less money now and you have to compete with landlords who own their properties out right (which is most of them). You are really vulnerable to interest rate rises compared to most of the market.

 

[Psycho Sonny]

You pay corporation tax on profits. I didn't say you can completely avoid tax, it's much more efficient then having the BTL in your personal name.

so did we agree this was completely wrong and bad advice?

 

[Simon]

That’s not accurate as I have already posted. Wear and tear also only applied to furnished let’s which most aren’t. You can still make deductions to replace said furniture at the time it needs to be replaced.

That said I don’t disagree with your wider point, you certainly make less money now and you have to compete with landlords who own their properties out right (which is most of them). You are really vulnerable to interest rate rises compared to most of the market.

Ok 20% of interest you can now deduct but still a big difference.

 

[Simon]

Can I also jump in here and ask a question?

If I’ve paid off my mortgage and choose to buy another property to rent out (purchase outright). Let’s say it rents out for £600 a month. Would tax be £2880 a year based on being a higher rate taxpayer? Am I correct in understanding that any rental income is basically seen as extra income and taxed at the same rate?

It may also impact your personal allowance

 

[chroniclard]

Had a btl for a few years, lucky with tenants been great, see it as a long term investment rather than an income. May well be less lucrative now but eventually will have a house paid off, mostly, by the tenants.

 

[BUDFORCE]

so did we agree this was completely wrong and bad advice?

Is what?

Setting up a company to own your BTLs or just getting a BTL in general?

I am getting loads at the moment purchasing BTL from themselves, even taking the hit on SDLT.

 

[Simon]

Is what?

Setting up a company to own your BTLs or just getting a BTL in general?

I am getting loads at the moment purchasing BTL from themselves, even taking the hit on SDLT.

What’s the maths that this work? I’ve never really thought it was worth it with only property ?

 

[b0rn2sk8]

Ok 20% of interest you can now deduct but still a big difference.

I never said it wasn’t but there is also a ‘big difference’ between not being able to deduct anything and 20% of your finance costs....

 

[Simon]

Fair comment. Ellipsis are 3 dots

 

[MatteH Oxford]

Profits from the rental income is only part of the picture. You're primarily looking at owning an appreciative asset at the end.

Not on an interest only BTL mortgage, the capital wouldn't be paid off by the end of the term unless an alternative payment plan was made to cover the initial capital cost of the property.