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  • Renting out my flat – numpty questions to landlords
  • Ewan
    Free Member

    Due to a convoluted series of events I won’t go into here, I’m in a position to either sell or rent my flat out. Key facts:
    – There are 72 years left on lease
    – Not in negative equity any more (purchased in 2008 = epic fail)
    – Going to ‘loose’ about 28k on it (tho we moved, so presumably that house was cheaper than it otherwise would have been so swings and roundabouts plus I’ve come to terms with it now!)
    – I can change the mortgage to be a renting out one if I add 1.5% to the current rate according to Nationwide which makes the rate 4.5%

    At the moment I’m thinking just get rid of it (i.e. price it to sell!) as I don’t really want to be a landlord and I’ve just had the place redecorated with a view to selling. However someone mentioned that you can offset the interest portion of the mortgage against your overall tax bill which I’d not realised.

    So some questions to the STW oracle:
    – What things are tax deductible?
    – By tax deductible does that mean that if I’m paying 10k in tax via PAYE (for example) then I could spend 5k on the interest on my flat and my tax bill would be reduced to £5k?? (assume i’d need to go into self assessment)
    – Is 72 years too short a lease? That’s my main reason for shifting it at the moment, I don’t have the 15k required to extend it.

    Apologies for the numpty questions (this may in fact point to whether I should be a landlord or not!).

    wwaswas
    Full Member

    I ended up in the same position in the early 90’s.

    all rental income can be offset against interest you pay.

    so you pay £10k interest and receive £10k rental income and tax bill = £0

    £5k interest + £10k Rental = tax on £5k (at whatever your marginal tax rate is)

    you can claim any maint charges, direct costs of renting and, if you rent furnished, either the capital costs of furniture or depreciation.

    you’ll need to do a tax return each year and keep receipts for electric inspections etc so you can claim the costs.

    I sold my flat for a modest profit after about 10 years (not enough profit to be taxed as a capital gain, though).

    If you rent and then sell at a loss you may be abel to claim some of the loss against tax but I’d talk to an accountant (I’d talk to anm accountant anyway, tbh).

    Rockape63
    Free Member

    don’t sell is my advice. take the long term view and you’ll get your money back and more eventually.

    winston_dog
    Free Member

    After becoming a landlord due to having to move and couldn’t sell in a very slow market, I really can’t recommend it unless you are going be local and can manage the property yourself.

    I had to using an agent for everything as I was at the other end of the country and it was an expensive set up.

    Also, it is always quite stressful and the majority of tenants I had were an absolute pain.

    Not something I would like to repeat.

    Moses
    Full Member

    So far as I remember, the interest if offset against income.
    So if the interest component of your mortgage is £400 / month and your rental income is £600 / month, you would state that in accounts. Your decorating costs could be offset, too, plus extra insurance etc.

    It’s not that easy to make a profit renting out flats if you have a repayment mortgage, but it might be a long-term investment increassing your pension by £6k a year when you need it most.

    Ewan
    Free Member

    Can I only offset against the rental income? Or against all income?

    wwaswas
    Full Member

    so if your rental income is less than the mortgage interest+other costs?

    (think you can only claim the interest costs, not capital?)

    Ewan
    Free Member

    Yes, sorry not being clear. Figured interest + council tax + water + etc etc would be more than the rental income.

    Anyone got a view ont he 72 year thing?

    wwaswas
    Full Member

    I’d make the tenants pay council tax, water etc…

    Not sure you can offset it against your PAYE tax but you can carry a loss forward to future years so if there’s any tax liability in the future you can use previous year ‘losses’ to cover it.

    re: 72 year thing talk to an Estate Agent in that area or look what’s coming up sale leasehold?

    annebr
    Free Member

    The 72 years thing would be a problem trying to sell anyway as Banks wouldn’t particularly want the new owner to borrow against it. So you’d likely have to get the lease extended anyway.

    All expenses incurred in renting (management fees, interest, insurance, etc) can be offset against your total tax bill (rent + your PAYE income).

    annebr
    Free Member

    BTW you don’t pay council tax the tenant does. And if the place is empty you tell the council and you get council tax waived (for a period of time)

    Be prepared to be able to pay your mortgage even if you dont have a tenant. Though you really should be able to get a new tenant without to much vacant time.

    Ewan
    Free Member

    BTW you don’t pay council tax the tenant does. And if the place is empty you tell the council and you get council tax waived (for a period of time)

    Not any more…. have you pay the full amount when it’s empty.

    poolman
    Free Member

    in year 1 if you pay 10k in interest & receive 10k in rent, plus say 2k bills to prepare it cough cough, then you make a tax loss of 2k. You can’t transfer this to your income but you can carry it forward to year 2.

    Its worth posting losses as 1 day you will make a profit & you will need some brought forward losses or you will pay tax.

    The extra bills in preparation I would include are the safety checks for gas/elec, any cost you will incur as a result of letting, 45p per mile in visits, stationary/phone costs in admin.

    Keep all your receipts & look at landlordzone.com, there’s loads of free advice on there.

    Good luck, I’d keep it & let it out.

    hh45
    Free Member

    i think 72 yesrs is too short anyway so you may need to rent it out for 5 years to save up to buy an extension. check the cost of a 53 yr extension v a 58 year extension?

    dont rent it out if you will be too far to manage it yourself. giving away 8-12% to managing agent destroys the margins. you must do it yourself to save money and provide a better service.

    if you are in a landlord’s area (eg London) then be confident. if more rural i should think twice.

    Tax deductable expenses are mortgage interest; (this may extend to interest on your home mortgage up to the value of the house. I’m sure some people borrow against their home (cheaper rates) to buy the buy to let – check); repairs and maintenance, insurance, costs of management / letting fees; gas safety certificates etc etc. But not the capital repayment of a repayment mortgage.

    I look after 2 houses in London a family member owns and they take v little time as the tenants are so grateful they never complain. keeping the rents 5% below the max does the trick and so many LLs are gits its easy to impress.

    thekingisdead
    Free Member

    Hh45 speaks sense….

    mikewsmith
    Free Member

    Hh45 +1

    The HMRC has a good guide to and the tax is easy to calculate.

    My advice is on looking after yourself, choose a good agent (there are none) or do it yourself if you are close enough.
    Agents make money in the following ways:
    First Letting/Finders Fee (short term renters are better for agents)
    Monthly Fee for doing nothing
    Repairs/Maintenance/Services – using their nominated contractors so there is probably a % taken on that.
    Do VERY detailed inventories with photos of everything, check your tenants (best if you can show them around) and do regular inspections (3 monthly) to keep them on their toes.
    Get your head around the Deposit scheme and good luck.

    jambalaya
    Free Member

    OP plenty of good advice above, just adding my voice to the “yes, rent it out” with one comment

    What I would check is by how much the rent will exceed the mortgage and you need to take into account that someday the mortgage rates are going to be a lot higher than today, overtime they could easily double.

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