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Original poster

BTL and Tax Credit

19 replies

lizzy789 · 05/12/2013 21:56

My parents offered me to give me a lump sum to help with getting a buy to let mortgage as an investment. (Can't get a residential mortgage as earning too little).
I am receiving Child and Working Tax Credit at the moment, not much though. I was wondering if anybody knows whether it will effect my tax credit having a buy to let mortgage and receiving rental income which will go 100% towards the mortgage. Any advice would be appreciated!

OP posts:

lalalonglegs · 05/12/2013 22:04

If it's a business that isn't making any money (the rent will only cover expenses such as the mortgage, agency fees, gas safety checks, repairs etc) then I suppose it doesn't affect your income. But until you have done your first self-assessment tax return (which I believe you will have to do, if you are receiving non-PAYE income), you won't be able to show that so you may well end up having your support docked.

I'm not sure that's entirely the point though: why would you rent out somewhere if you're very unlikely to make any money from it? What will happen when interest rates go up?

Original poster

lizzy789 · 05/12/2013 22:17

Good point. I am thinking long term that the tenants will pay off the mortgage for me. It is London based where house prices still rise too.

OP posts:

lalalonglegs · 05/12/2013 22:57

If you're paying off the mortgage then please bear in mind that only the interest part of the mortgage is tax deductible. So if the rent is, say, £1000 per month and the mortgage interest is £500 per month, that remaining £500 is viewed as income (obviously there may be other expenses that can be deducted too but the mortgage is likely to be the biggest allowable expense). Furthermore, at the end of the year, you may find that not only has this affected your tax credits but you will have to pay tax on any "profit" which may only be a paper one if you are pouring all the rent into paying off the mortgage.

You mentioned that you are on a low income, I wonder how you will be able to deal with tenants who build up arrears or voids in rental periods if money is a bit tight.

Sixweekstowait · 05/12/2013 22:59

Just run away from this

Canthaveitall · 06/12/2013 07:00

What lalalonglegs says plus its surely not just income that affect tax credits. You would have an asset. It can't be right that you have a property with a substantial amount of money in it and then you get tax credits.

specialsubject · 06/12/2013 10:28

do you also have the cash to pay the mortgage during void periods, maintain the property, pay agents fees, pay the insurances and all the other etceteras that come with a rental property?

it seems a good idea with inflation so high and interest rates so low, as property should hold its value (if nothing more) but being a landlord is a lot of hassle and does not make you rich.

Original poster

lizzy789 · 06/12/2013 16:52

I know people who have a residential Morgage and live in the property who still receive tax credit as single parents. I won't be able to get a residential Morgage as won't have the earnings. But wonder whether it's the same situation when having a btl Morgage.

OP posts:

lalalonglegs · 06/12/2013 20:32

Yes, but if you're living in your own home, you're not receiving an income from that property. It is a different situation.

Also, while I don't know what your living arrangements are at the moment, a BTL mortgage will disqualify you from ever being considered for council or HA property or keeping a council or HA property if you already lve in one.

Sunnyshores · 06/12/2013 21:04

To be honest, this seems a really dangerous investment, you could easily end up having to pay several months mortgage and some major maintenance fees, plus monthly cashflow will only get worse as mortgages will go up in the next 2 years. Also, being a landlord is a big deal with loads of responsibilities and stress, getting that side of things wrong will also cost you thousands.

Canthaveitall · 06/12/2013 21:12

They may be living in their own property but this is an investment. It's not so different to having money in the bank or shares. Would you get tax credits if you had the equivalent sat in a savings account? I don't know how that works but always thought you only got it if you had less than a certain amount in savings. I am no expert on this but to me it's common sense.

mercibucket · 06/12/2013 21:18

your parents can buy a house that you rent out from them if they are looking into btl
it has to be done on a proper commercial basis

mrsminiverscharlady · 06/12/2013 22:53

Savings are not counted for tax credit purposes Canthaveitall, only income ie interest above £300 from savings. So any profit above £300 that the OP made towards paying off the capital on the mortgage would be counted. You're getting confused with other benefits such as income support, which take capital into account.

OP it sounds like a very risky investment. Why can't they take it on themselves and sign it over to you in their will?

LIZS · 07/12/2013 09:17

You need a larger deposit for btl than residential but presumably it isn't enough to buy you a suitably sized place to live yourself. Agree only the mortgage interest is deductible so if you have a repayment element (which it sounds as if you are planning to) that is considered as income for tax purposes.

RedHelenB · 07/12/2013 16:44

Thing is by 2017 everyone will be moved onto universal credit & I would hazard a guess that your BTL would be seen as an asset & therefore might be a barrier from being able to claim. I think for savings over £16,000 you won't be entitled to any help. Would it not be better to buy a house to live in instead?

RedHelenB · 07/12/2013 16:46

Just read post about not earning enough for a residential mortgage. Definitely do not go for a BTL in that case, it could really bite you on the bum & ruin any chance of one day buying your own home!

zebrafinch · 07/12/2013 19:13

Tax credits at present are based on income only. As I understand it When universal credit is introduced tax credits will be rolled into it and your entitlement will be based not just on income but capital too. If you have assets such as an investment property with equity of more than £16000 you will not be eligible for universal credit. effectively you will lose your tax credit. So definitely check this before you go ahead.

zebrafinch · 07/12/2013 19:19

Google Universal credit and capital
One of the first documents in the listing is a Rights net document on Universal Credit Policy Briefing on treatment of capital
Apologies I cannot link

Original poster

lizzy789 · 08/12/2013 21:26

Thanks for all the help and info. I am just stuck it looks like as could have the deposit for a mortgage but don't have the accounts/income to get a morgage :-(

OP posts:

mercibucket · 09/12/2013 09:03

have you looked into having your parents as a guarantor for a mortgage? i assumed you were getting housing benefit, but if not, it would be easier. you then pay the mortgage but they are able to help you get the mortgage in the first place

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