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Need advsie on Capitol Gains Tax and Buy to let?

20 replies

Katymac · 30/04/2006 19:06

I was hoping to buy a house to let - using the income to pay the mortgage (& agents fees) then when I retire using the income (now mortgage is paid off) to live on

But my Dad says any income will be taxed at 40%

Is this right - if so my pension idea is stuffed

OP posts:
mazzystar · 30/04/2006 19:24

I think income from property is taxed at normal income tax rates, and that you pay tax on profit (ie after you have paid mortgage and maintenance costs, fees etc). You would only pay capital gains tax on the difference in value of the property from the time of purchase to the time of sale.

Will try to find a link somewhere.

Spoo · 30/04/2006 19:33

I would agree with Mazzystar, profit is taxed at normal rates - you will need to do a tax return each year. Capital Gains Tax (CGT) is taxed when you sell the property and make a lump sum profit. You only pay this if you have had the property more than three years (doesn't help in your case - but could if you change your mind later). I recommend you get a bit of advice from an accountant before you decide to do it and research the area well before buying. I found that a lot of properties were to expensive to buy to let as the mortgage can be significant in comparison.

LIZS · 30/04/2006 20:02

If it takes you into the next income bracket, when added onto your current income, then yes you could find yourself being taxed at a higher rate than at present. You may be able to divide the income between you and dh/dp and use both your allowances but it would have to be jointly owned. Taxable rental income is net of interest on mortgage (ie. not including any capital repayment element), agent's fees (if applicable) and vat thereon, maintenance costs (not sure about actual home improvements though) , insurance etc. You'd need to do your sums carefully as to whether a particular property is viable in terms of paying for itself. If at any point it is unoccupied you have to pay 90% Council Tax for furnished or 100% unfurnished, plus all utilities and insurance.

Katymac · 30/04/2006 20:21

Thanks for this info - I think I may need professional adviseSad

OP posts:
plummymummy · 03/05/2006 13:10

katymac imo it is still a great pension plan. If you own the property more than ten years you don't pay capital gains tax. Every year you own it you get tapered relief (which reduces the amount of tax you pay on the sale)so the longer you have it, the better. There is a good guide but I am crap at doing links. Try searching A-Z of UK Capital Gains Tax and if I can get a better ref for you I'll mail you back

plummymummy · 03/05/2006 13:14
plummymummy · 03/05/2006 13:15
plummymummy · 03/05/2006 13:15


FrayedKnot · 03/05/2006 13:34

Katymac I used to own a house which I bought and rented out.

While you are renting it, teh rental income is taxed at the rate at which any income you have would be taxed. So if you do not have any other income, you will get your normal yearly allowance, then 10%, etc etc, just as if it were income from work.

There are lots of things that are tax deductible - agents fees for letting it, any maintenance costs, etc. These can add up to quite a lot, keeping your actual income low.

The crunch is when you actually want to dispose of the property. The longer you have it, the less capital gains you pay. If you keep it for at least 10 years, you will be paying the minimum amount possible.

Capital gains tax is not taxed at 40%. Again, it is taxed as income, so if you don;t work, or have any otehr income, you will be taxed accordingly.

You can get books out of the library about all this, I never had any "professional" advice, just read up on it and worked it out!

I would say it is a good idea as property values rarely fall over the long term and in some areas are still forecast to make big increases.


AngelaD · 05/05/2006 21:39

The buy to let ship has sailed a long time ago, unless you can make 10% yeild, don't touch it with a barge pole and make sure you have factored in everything repairs, interest rate increases, vacant periods.

Katymac · 05/05/2006 21:42

I don't actually need to make any money for 35yrs - I just need to cover my mortgage and expenses

This is to be my income when I'm old(er) and grey(er)

OP posts:
AngelaD · 05/05/2006 23:03

You do need it to cover your expenses though and unless it is clearing 10% profit then it will cost you money in the short term at the very least. With investments you make money when you buy low and sell high, which at the moment you would be buying at the highest price houses have ever reached.
Everyone is spouting off about the long term etc etc but if you actually look at the stock market V's the property market over the long term stocks out perform property 10 to 1 and your stocks won't call you at 2am to tell you the boilers blown up.
If you're going to get advice at least be sure to get it from somebody who doesn't have a vested interest, ie an estate agent - wants to sell you the house, independant mortgage advisor - wants to sell you the mortgage, man at the chip shop - wants you to buy his buy to let because it's been stood empty for 6 months.
If you can make money now, then it's a reasonable risk for your return, if it's going to cost you 1p now, wait until the prices drop until it is making you money, the bubble will go pop eventually, just have your cash ready so you can take advantage of it.
Good luck

ladymuck · 05/05/2006 23:21

AngelaD, not so sure that stocks outperform property 10 times that often? Where is that data from?

I think that one of the things that you do need to think about with this sort of investment is whether you can spread your risk (and I think that it is here where shares may have an advantage) - you need to have a substantial amount of cash to be able to invest in a number of buy to lets whereas just investing in one property is more risky (you're more protected against vacant periods, difficult tenants if you have a portfolio of say 7 or more properties).

Katymac, in terms of what you're looking for, you would have to find a property where the rental income is more than the mortgage interest plus mortgage capital plus some agency fees. Given that, then you must ask the questions as to why someone would pay that level of rent (and for how long someone would pay rent when it would possibly be cheaper to buy). Either you would end up with short term tenants (and therefore become vulnerable to gaps between tenants without income), or you would be looking at tenants who would be unable to get a mortgage themselves. In the past few yeasr buy to let has been popular because there is an assumption that house prices will increase rapidly (and not that the buy to let market would offer an income return). I would expect that in general the numbers would show that you're very vulnerable to losses over the next 35 years.

Katymac · 06/05/2006 07:57

Yet more to think about...more houses are a possibility - but they will take a while, then thee is that capitol gains stuff hmmmmm

OP posts:
plummymummy · 06/05/2006 22:24

katymac have you considered subletting to a housing association or specialist rental company who guarantee rent regardless of occupancy? We bought a buy to let 4 years ago and let it to a housing association on a 4 yr contract. The yield wasn't great (paid below market rate)but covered the mortgage. We need to sell it now to finance a house purchase but even after cgt we still stand to make over 50k (and I think that's an excellent investment after 4 years). There are now companies who offer market rent so better yields - and they guarantee your rent. Most stats show that property always makes a profit in the long term. If you can afford a large down payment you reduce risk of poor yield as your mortgage repayments will be lower. Good luck Smile

Steppy1 · 06/05/2006 23:00

Frayedknot,, I thought cappital gains was ALWAYS 40% on the difference between purchase and sell price when it's anything other than your main residence ???? Interested if it isn't. Katymac..... dare I suggest the option of looking abroad (waits to get lynched!!) We were looking into buy to let a few years ago but decided that the UK market was probably about to invested in the US. We've had the property for just coming up to 18 months, enjoyed a significant growth (already around $200k US dollars) taxation is much more advantageous as holiday lets are tax at a lowere rate...and as we pay tax in the US we don't pay tax in the UK (there's a reciprocal agreement between US and UK which allows this apparently) We didn't buy in Disney (avoid like the plague)...and we get to take fab hols a couple of times a year !. I guess the key is alway to find a reputable company to deal with....

plummymummy · 06/05/2006 23:46

Yeah, we would consider looking abroad next time. Is your place near a golf course? I heard they always rent out well. You've made excellent equity. Food for thought re. the tax stuff. You don't pay 40 pc on the profit by the way cos you get tapered relief as the link I sent katymac explains.

AngelaD · 07/05/2006 09:03

Plummymummy - 4 years ago was a good time to buy, the market has gone through the roof with BTL's now there will be nobody left to rent them soon.
Like all good investments you have to know when to buy and when to sell and right now is the time to look for a nice place to build your deposit whilst we wait for the bubble to pop.

Steppy1 · 09/05/2006 12:41

..It IS near several golf courses (part of the area development), but also large shopping centre (20 mins) and fab white sandy beaches (10 mins)... just perfect. It's also on a deed restricted residential community so also looks very clean and nice.....only negative is the "small" issue of hurricanes !!!!!!! So there is a risk. We're about to buy another actually but only because the company who we buy through will then lease it back as a show home for 3 years and pay all costs (mortgage, maintenance, bills) We just have to stump up local taxes (around $2000 per annum) but sit on the appreciation for what will amount to 4 1/2 years (off plan build)

plummymummy · 10/05/2006 21:15

Florida by any chance? Sounds lovely Envy

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