The joy of being a landlord

[MikeTimbers]

Seems that where there is a good landlord and a good tenant, all is fine and dandy. The problems come when one side or the other is not "good". The new legislation appears to be intended to protect the good tenant from the bad landlord but it also seems to weaken the position of the good landlord with the bad tenant. Is that a fair summary?

I'm considering buying (outright) a flat to let while I retire abroad and financially it appears to be a good investment but I do worry about the possibility of getting a bad tenant and having endless problems.

 

[dlockers]

Seems that where there is a good landlord and a good tenant, all is fine and dandy. The problems come when one side or the other is not "good". The new legislation appears to be intended to protect the good tenant from the bad landlord but it also seems to weaken the position of the good landlord with the bad tenant. Is that a fair summary?

I'm considering buying (outright) a flat to let while I retire abroad and financially it appears to be a good investment but I do worry about the possibility of getting a bad tenant and having endless problems.

Safer places to put your cash given the buy-in and poor returns. Best buy 3 or 4 flats on BTL and hedge the risk.

 

[Hagar]

If I bought a house and installed my daughter as a tenant, who would determine the market rate for the rent ?

IE how low could it be?

 

[Pottsey]

If I bought a house and installed my daughter as a tenant, who would determine the market rate for the rent ?

IE how low could it be?

You as the owner can set whatever market rate you like, your daughter as the tenant chooses if she accepts that rate. There is no limit on how low you go, if you wanted you could charge as little as £1 or 1p but if you set this up as a proper rent/tenant you would be responsible for all the usual landlord costs and could run at a loss. You also might need to fill out the tax forms e.c.t as you might have to pay tax on the rate.

 

[Hagar]

You as the owner can set whatever market rate you like, your daughter as the tenant chooses if she accepts that rate. There is no limit on how low you go, if you wanted you could charge as little as £1 or 1p but if you set this up as a proper rent/tenant you would be responsible for all the usual landlord costs and could run at a loss. You also might need to fill out the tax forms e.c.t as you might have to pay tax on the rate.

Thanks, I did not want to tripped up by some obscure regulation. Ultimately she would own the property as sole inheritor in my will.

 

[Nitefly]

Thanks, I did not want to tripped up by some obscure regulation. Ultimately she would own the property as sole inheritor in my will.

If that is the end goal, you might want to consider transferring the property to her now / soon. It may well avoid very hefty inheritance tax on the value of your post-death estate.

Just food for thought!

 

[Freakbro]

If that is the end goal, you might want to consider transferring the property to her now / soon. It may well avoid very hefty inheritance tax on the value of your post-death estate.

Just food for thought!

You have to be a bit careful about that though as if she didn't pay a fair price for buying the house it could be looked upon by the council as deprivation of assets to avoid care costs (if that ever arose) and then the 7 yr IHT limitation isn't in effect.

And there are some restrictions on renting a property to a connected person at an amount that is classed as "below market rate" in that you can't apply all expenses incurred if this would result in a trading loss, you can only claim expenses up to the value of the reduced rent amount.

What is ‘Market Rate’?​

Obviously, HMRC do not have the legal power to tell a landlord how much rent to charge, however, if a property is rented to a ‘connected’ person it is likely that HMRC will ask for confirmation that the rent being charged is at a commercial/market rate. This ‘market rate’ figure can easily be found by use of such websites as ‘Rightmove’ but HMRC will require written confirmation which can be obtained from a reputable local letting agency.

General Income Tax Implications​

If the tenant is ‘connected’ to the landlord and pays an amount at less than the market rate then HMRC will enforce the rules which centre round the amount of expenses that can be claimed as a deduction from the rental income received.


The full amount of expenses incurred will not be allowed. However, as a concession HMRC will allow the landlord to claim a total amount restricted to the rental income derived from that property. Expenses incurred in excess of this figure are not allowed to create a loss, neither can they be carried forward to be utilised in any future year; they are, therefore, wasted.

 

[flibbage0]

I was looking at investing in property in 2021/22 before the rates went crazy, but now with all the law changes, high taxes, high interest rates. I genuinely don't see the point of investing in residential property anymore. Commercial property looks interesting however looks like the barrier to entry is quite high.

Maybe I should just leave houses for people to buy and live in, everyone seems to hate landlords as much as burglars.

 

[adidan]

I was looking at investing in property in 2021/22 before the rates went crazy, but now with all the law changes, high taxes, high interest rates. I genuinely don't see the point of investing in residential property anymore. Commercial property looks interesting however looks like the barrier to entry is quite high.

Maybe I should just leave houses for people to buy and live in, everyone seems to hate landlords as much as burglars.

I think commercial and holiday lets seem more attractive than residential nowadays tbh.

 

[Hagar]

You have to be a bit careful about that though as if she didn't pay a fair price for buying the house it could be looked upon by the council as deprivation of assets to avoid care costs (if that ever arose) and then the 7 yr IHT limitation isn't in effect.

And there are some restrictions on renting a property to a connected person at an amount that is classed as "below market rate" in that you can't apply all expenses incurred if this would result in a trading loss, you can only claim expenses up to the value of the reduced rent amount.

Reading the above, HMRC may apply to a lettings agent to check whether the rent is at or above market rate. However they cannot make a landlord charge market rent to a tenant, connected or otherwise (sounds a bit mafiosi).

The landlord would also be unable to apply for expenses above the rent charged creating a tax loss on the year. Sensible.

All this seems reasonable.

 

[flibbage0]

I think commercial and holiday lets seem more attractive than residential nowadays tbh.

I don't understand how it works though, a majority of commercial units for sale are huge and cost £500k+ whilst holiday lets are surely seasonal? So maybe 4 or 5 months in the year you can let it out but then what happens the rest of the year?

 

[Quartz]

So maybe 4 or 5 months in the year you can let it out but then what happens the rest of the year?

On Skye the season is 9 months of the year. I presume it's similar for other areas.

 

[dowie]

I don't understand how it works though, a majority of commercial units for sale are huge and cost £500k+ whilst holiday lets are surely seasonal? So maybe 4 or 5 months in the year you can let it out but then what happens the rest of the year?

You have empty periods and/or you rent it out at a lower rate out of season. Presumably, the 4 or 5 months you're talking give a good enough return to make it worthwhile else it wouldn't be worth doing.

Commercial property doesn't need to have a huge barrier - 500k+ sounds more like large-ish pubs and industrial units. There are also shops for sale or indeed even lockup garages.

In theory, unlike residential property, you can put commercial property inside your pension, though if you need a mortgage to buy it then that's probably a bit iffy for most lenders with one exception - you're a small business owner and your business will be a/the tenant... which can also be quite neat as it's another way of making pension contributions pre-tax; end result your business pays rent to a landlord which is, in fact, your own pension fund/SIPP.

 

[mattx4]

I don't understand how it works though, a majority of commercial units for sale are huge and cost £500k+ whilst holiday lets are surely seasonal? So maybe 4 or 5 months in the year you can let it out but then what happens the rest of the year?

Looking at air bnb prices for places similar to my rental, I could probably charge the monthly rent per week if not higher

For a place within commuting distance to London there's not really an off season there's always people looking for temporary accommodation near London

I'm considering it once the current tenant leaves

 

[Freakbro]

All this seems reasonable.

Yea, absolutely. It's intended to stop people incurring an intentional loss to offset against other/future profits. It's just worth being aware of that if you decide to rent it at a peppercorn rent (which you are still entitled to do)

It may well come up as HMRC have been tightening up/having a purge on "hobbyist" landlords and them declaring income from their 2nd homes.

 

[adidan]

I don't understand how it works though, a majority of commercial units for sale are huge and cost £500k+ whilst holiday lets are surely seasonal? So maybe 4 or 5 months in the year you can let it out but then what happens the rest of the year?

Yeah but see the weekly rates!

They'll fluctuate throughout the year depending on demand of course but you'll still be able to get someone in at the right rate. Plenty of people want a getaway all year round, for the right price.

 

[NVP]

I recall a change to the rules a couple years ago making certain commercial grades applicable to be converted to residential. Increased viable options for investment around the town centres.

 

[dowie]

I recall a change to the rules a couple years ago making certain commercial grades applicable to be converted to residential. Increased viable options for investment around the town centres.

Happened where I live, we had some retail units but there wasn't the footfall, end result is a bunch of them converted into ground-floor apartments.

Worked out quite nicely, there is still a Tesco and a gym in the bigger ground-floor units, and there's also a GP surgery, nursery and pharmacy on-site in separate buildings... all that was lost is a laundrette and some spaces they'd hoped to let out to be say cafes or restaurants etc.. but there are cafes and restaurants just a few meters away when you walk outside the development anyway and perhaps it's better not to have loads of people who don't live there coming through.

 

[Nitefly]

You have to be a bit careful about that though as if she didn't pay a fair price for buying the house it could be looked upon by the council as deprivation of assets to avoid care costs (if that ever arose) and then the 7 yr IHT limitation isn't in effect.

And there are some restrictions on renting a property to a connected person at an amount that is classed as "below market rate" in that you can't apply all expenses incurred if this would result in a trading loss, you can only claim expenses up to the value of the reduced rent amount.

Yes - it would need to be carefully managed (I.e. prof financial advice).

 

[kindai]

Finished off my next BTL today, couple of snags to sort but given the absolute state it was in when purchased (including blocked downpipes, burst in wall pipework and electrics hanging off the walls), happy with the end result.