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Original poster

Buy to let is it worth it?

37 replies

Lenny1987 · 03/11/2019 09:03

Currently looking at moving to a larger property, and people have said we should rent current property out? We can afford to do this but with all the tax changes in recent years wondering if in other peoples experience it is worth it? Thanks

OP posts:

wowfudge · 03/11/2019 09:14

You'll incur additional stamp duty if buying a second home.

Original poster

Lenny1987 · 03/11/2019 09:43

Thanks @wowfudge, I have factored that in, it is a pretty hefty fee but unavoidable!

OP posts:

Piccalillies · 03/11/2019 10:02

I think you need to be able to divorce yourself of any sentimental attachment to your current home and think of it purely as an investment. Tenants will probably not treat your home as you would.

wowfudge · 03/11/2019 10:20

I think you need to think of it as an asset which will probably increase in value, but possibly not that you will make money from it. It may cost you as much if not more than the rent you'll get and not just because of the extra stamp duty. Depends whether you have a mortgage, do you pay someone to manage it, how much is the rent? You have to weigh up whether selling it, possibly for less than you'd like depending on the local market, is a better option. There is also potential capital gains tax to pay when you do come to sell it.

NWnature · 03/11/2019 12:33

It’s very punitive from a tax perspective nowadays. As people have mentioned, additional stamp on your new home and capital gains tax when you come to sell. You also obviously have to declare and pay tax on the rent. Do you do a tax return at the moment? Also I would bare in mind the hassle of it all. It’s not a very liquid asset either so if you are on the fence why don’t you look into other options like investing the sale proceeds into a multi asset portfolio, using your ISA allowances etc. Gives you more flexibility to draw upon the funds in the future should you wish.

rzasoshp · 03/11/2019 13:18

Most landlords I know don’t pay the tax so it is very lucrative. If you actually do the sums, including all tax and a level of prudence for tenant voids, damage and unpaid rent it looks a lot less attractive.

JoJoSM2 · 03/11/2019 14:56

You need to work out the returns based on a BTL mortgage (higher interest) and maintenance costs. To decrease your tax bill you could look into increasing pension contributions.

I doubt it'll make much money and it's a lot of hassle. It'd probably make more sense to sell and invest the money elsewhere.

JoJoSM2 · 03/11/2019 14:58

PS, bear in mind that if you keep the house but decide to sell in a few years, you might be liable for CGT. It'd be wise to read up on all of this as it's not sth that can be squeezed into a paragraph on a forum.

Her0utdoors · 03/11/2019 15:01

It's unlikely that one property will consistently provide you with an income. A new boiler /leaking shower needing new ceiling or replacing joists will potentially mean that you are at a loss by the end of the year. But you would now have 2 properties that would hopefully be increasing in value. Basically, you need to keep a congingency fund for the rental property.

Original poster

Lenny1987 · 03/11/2019 19:35

Thanks for all the advice. Sounds like a no from most!

OP posts:

jellybean85 · 03/11/2019 19:42

I've done exactly this when I met with dh.
We moved into his and rent mine out, I didn't want to lose the security of my own property. It barely makes any profit, around £50 a month that we keep for a cushion for repairs but has already increased in value a lot and we plan to sell when we retire for a lump sum

Original poster

Lenny1987 · 03/11/2019 21:22

@jellybean85 that's what we had planned too, hope that it increases further and sell, taking into account the capital gains tax. We might give it a go, can always claim back the stamp duty if we sell within 3 years if it is too much hassle.

OP posts:

jellybean85 · 03/11/2019 21:30

I think if you're willing to wait and be patient it will be worth it in the long run, the rent on ours covers expenses so it will be mortgage free in our mid 50s and then can make
Profit for 5 or so years before selling, it really is for the long haul rather than short term profit. I never intended it like this, definitely an accidental landlord and have been lucky to be able to rent below market rent to a lovely long term family who have the security of knowing we won't ever kick them out

W0rriedMum · 03/11/2019 21:40

Most landlords I know don’t pay the tax so it is very lucrative.
It's actually very rare to dodge tax on BTL because the agents need to disclose their side, plus the owner is register as the landlord for council tax even though normally the tenant pays. The tax department is very hot on this.

It used to be worth it when the mortgage interest was tax deductible and the CGT less onerous. I wouldn't bother getting into it now.

Cecilia2016 · 03/11/2019 22:42

We did this 5 years ago on our first house which we changed into buy to rate and unfortunately we had tenants from hell that damaged our beautiful house and left us with thousands of pounds in repairs and we sold it after. Stamp duty was quite big on our second home and off Course it goes with the price of the house .

earsup · 04/11/2019 01:19

I inherited a house from an aunt. Charge lower than average rent and long contracts and it's money for nothing. Lovely tenants. Will sell next year to release some cash and will buy a smaller house and let that out long term and lowish rent.

Sjl479 · 04/11/2019 03:19

As far as I know there would be no capital gains tax to pay as you lived in the house - different if you buy a house specifically to let it out

wowfudge · 04/11/2019 07:18

Sjl479 it's not that simple - depends how long you lived there and how long it was subsequently rented out. CGT mitigation is one of the reasons some of the developers on HUTH, for example, move into the places they've refurbished before they sell.

W0rriedMum · 04/11/2019 08:30

The relief is tapered quite radically and proof can be requested (e.g. you pay all your bills there etc.). It's not a case of moving back in to sell.

If you're keeping it for some years, be prepared to take a hit on CGT.

Zenithbear · 04/11/2019 08:48

We have a rental property each, both are mortgage free now. We are able to pay all of our bills for our own home and holiday cottage from the rental money which are also mortgage free. We are in our early 50's and it means that we only have to work part-time now and our wages go on holidays and fun stuff. So yes it was worth it for us.
Not sure if we will eventually sell or not but they have both at least doubled in value whereas our savings haven't.

CatUnderTheStairs · 04/11/2019 11:48

I'm an accidental landlord, moved in with boyfriend and kept my place just in case. I'm not sure with repairs, times it's been empty and things like gas checks etc that it's made me any money. But the mortgage is paid off and it's an asset and I'm not sure what i'd do with the money instead.

Movinghouseatlast · 04/11/2019 11:56

Some very negative views!

We have just done this and it has enabled us to move to another part of the country. It started as an accident as we were in a fixed rate mortgage with a huge charge to get out of it we sold.

It has been amazing for us. It is our pension now and also, like the poster above, means we can work part time.

We are good landlords, we have a great tenant who doesn't want to buy anywhere at the moment. Of course, there are huge risks, but at the moment it is the best thing we could have done having had a very difficult 7 years financially.

Lightsabre · 04/11/2019 13:24

It might be worth it if it's mortgage free. You would need to take your legal responsibilities as a landlord seriously as, when something goes wrong, it can go very badly wrong. Join a Landlords Association. Isn't there something in the pipeline about tenants rights changing in 2020 too that will make it very difficult to evict.

whataboutbob · 04/11/2019 14:37

@rzasoshp- you do realise that those landlords of your acquaintance are breaking the law?

mencken · 04/11/2019 15:32

Plenty of tax dodgers around - MN encourages it as long as it isn't landlords (look at all the 'pay in cash for a discount' 'not your business' posts!). Assuming you are more honest than many on here, you will need to do a tax return and declare all income. You can offset some expenses.

already in English law:

tenant fee ban. So doubled fees on inventories, references, tenancy agreements and so on. Easy to be messed about as tenants apply for lots of properties. Ok if you are in London where there will be a queue to pay a fortune for any shithole.

coming soon:

end of lettings relief if you sell a property that you used to live in, further reduction on the 'tax free' period from 18 months to nine. This is almost definite.
end of section 21; only in consultation but will probably happen without associated eviction process improvements. The 'no fault' is what most landlords use to evict wronguns as section 8 is so easily foiled. Game over when that comes in as far as I'm concerned, too risky.

Corbyn wants to extend discounted right to buy to private sector tenants. This policy may be too insane even for him but you have been warned. Wait at least until after the election.

anyway - have 'people' factored in the hefty insurance costs, agents fees, voids, repairs, maintenance and so on?

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