Strategy for a Second property we will let for 2 yrs max

by Readers Question

9:35 AM, 4th December 2015
About 3 years ago

Strategy for a Second property we will let for 2 yrs max

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Strategy for a Second property we will let for 2 yrs max

We will be downsizing in next 2-3 years so are buying a 2 bed bungalow in same area as current house – we are acting now to also beat the stamp duty (we only have 1 property at present) – completion date early Feb 16tips

We Own current property in joint names – intending to buy this same way. I did read about the tax/legal trust you can use to divert income if needed to one beneficiary (nice!)

My wife pays 20% marginal and I am solid 40% so we will keep that in mind for rental period of this property

It’s an executor sale that we will tidy up a little and rent out till such time a we decide to sell ours and renovate it / move, or indeed at that time in future we may just flip it. I am really not sure yet re strategy or timing re selling ours. Plans can always change, but we got the property at a good price and there is plenty of potential in it.

Regarding prep for rental it looks like kitchen stuff needs a clean and it needs a coat of paint on all walls, a Gas certificate (warm air heating), new cheap carpets and curtains (if my wife wins this argument!) and the garden needs a tidy. Aside from that (unless survey reveals anything) we will be good to go re rentals an we will use the local rental agent for a fully serviced deal as we do trust and know them. I’m not a landlord here just passing through !

Can anyone suggest what we should be doing here re the strategies mentioned to minimise costs / Tax / Legal things we should consider in the future etc etc ?

I already learned a lot about rental & tax deductible items / PPR / capital gains tax tricks / and perhaps some possible thoughts on getting some tax deductible work done on the rental whilst it is still deemed a rental before moving into it.

You Guys are far smarter than me so please give me some advice !

Thanks

Neil



Comments

matchmade

12:14 PM, 4th December 2015
About 3 years ago

I don't know why you particularly need a trust to divert rental income to a single beneficiary: as 50% owner of the freehold you can just sign a declaration that you wish your share to go to your wife. Assuming the total rent won't take her into 40% tax band, you will then be protected against paying 40% tax on some of your rent (see new Clause 24 rules from next April, discussed ad nauseum on this website).

Buy a reference book, such as Tax Cafe's How to Save Property Tax: it will pay for itself many times over with the kind of tips and longer-term planning that you are looking for.

Have the electric system checked out before you start letting: annual inspections, like the gas certificate, may be the next burden imposed on landlords, so it may pay you to sort out any issues now: upgrade the consumer unit, check the earthing, maybe replace or add sockets and TV/internet points.

You don't mention white goods. It sounds like you'll be letting unfurnished, but your tenants will probably appreciate it if you provide a good-quality washing-machine, fridge-freezer, oven and hob. A separate tumble drier will also encourage your tenant not to dry their clothes on the radiators, which may lead to excess internal humidity, condensation mould etc.

Upgrade the locks if they are worn. Check all the windows have locks. Fit a smoke alarm and a CO detector near any boiler or gas fire (now compulsory).

Replace the curtains: prospective female tenants notice these things, and the existing ones may not fit the fire regulations anyway.

Michael Barnes

13:24 PM, 4th December 2015
About 3 years ago

Any work done on the property after the last tenant has moved out is not deductable.

Michael Barnes

13:25 PM, 4th December 2015
About 3 years ago

Reply to the comment left by "Tony Atkins" at "04/12/2015 - 12:14":

It is my understanding (in England) that CO detectors are mandatory only where solid fuel burners are present, not for gas.

ray selley

14:02 PM, 4th December 2015
About 3 years ago

It is my understanding that you can only vary the proportion of rent for each owner where the joint owners are not married eg If a husband and wife own equal shares of a property then the profit from the rent must be shared equally.If a property is owned say by a mother and daughter then either party can take up to 100% of the profit.A married couple can of course vary their share of ownership of the property without attracting CGT or SDLT whereas non married joint owners may be subject to CGT and/or SDLT.Speak to your accountant of course but this was my accountant's advice

matchmade

15:50 PM, 4th December 2015
About 3 years ago

Ray - I stand corrected - thank you.

It would therefore pay Neil and his wife to split the ownership of the rental property (for purposes of allocating rental profits) in a more tax-efficient proportion, at least while he is a higher-rate income taxpayer. Depending on her income, it could be as high as 99%:1%, so almost none of the profit is taxed at 40%.

This can be done by signing a Declaration of Trust and informing HMRC using Form 17 (source: http://www.taxation.co.uk/taxation/Articles/2015/05/26/333138/declaration-trust).

This re-allocation of rental proceeds does *not* need to involve notifying the Land Registry or any mortgage provider.

The ownership structure can be changed back to 50:50 when Neil ceases being a higher-rate taxpayer or before sale or occupation as a PPR, using another Declaration of Trust. This would mean that both husband and wife could then use their CGT allowances in full on sale. Obviously there will be CGT to pay, even if Neil and his wife eventually live in the house themselves, as they will be liable for the period when the house was rented. Lettings Relief and the 18-month PPR allowance will ease the CGT pain somewhat.

Claire Smith

16:53 PM, 4th December 2015
About 3 years ago

Reply to the comment left by "Tony Atkins" at "04/12/2015 - 12:14":

It is worth bearing in mind that white goods aren't tax deductible unless they are integrated,so perhaps only buy them if you need to to secure a tenant. Some tenants already have some white goods of their own anyway.

NVP NVP

15:43 PM, 6th December 2015
About 3 years ago

thanks to all ......some great points ............now how the hell do we all buy more properties without incurring this damn 2nd home Stamp duty tax from april 16 .............answers on a postcard ?

N

Carol Thomas

18:16 PM, 6th December 2015
About 3 years ago

We were advised to hold ALL our properties as Tenants in Common, not Joint Ownership by our accountant. I'm not sure why now, I have developed the worst memory ever! You should be able to Google it or one of the good people on here may be able to clarify.

ray selley

18:48 PM, 6th December 2015
About 3 years ago

Reply to the comment left by "CaZ " at "06/12/2015 - 18:16":

JOINT TENANTS
* You have equal rights to enjoy the whole property
* The property automatically goes to the other owners if you die
* You can not pass on your ownership of the property in your will

TENANTS IN COMMON
* You can own different shares of the property
* The property does not automatically go to the other owners if you die
*You can pass on your share of the property in your will

You can change the type of ownership if agreed by all the owners
with out having to pay a fee

Michael Barnes

19:32 PM, 6th December 2015
About 3 years ago

Reply to the comment left by "NVP NVP" at "06/12/2015 - 15:43":

1. incorporate.

2. Buy 15 quickly.

1 2

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