Tiny  Portfolio – Any advice for accidental landlord

by Readers Question

9:39 AM, 7th November 2016
About 2 years ago

Tiny Portfolio – Any advice for accidental landlord

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Tiny  Portfolio – Any advice for accidental landlord

I am a landlord by default. My mother had a stroke in 2011 and needed full time care so I quit my job and moved from Northumberland back to Norfolk with my husband. We let out our house as had no time to sell it.Tiny dog

Five years on, as we both have no decent pension to come to us, our tenants have been in situ for the entire time, with absolutely no problems, so we purchased another small flat in January 2016 in Norwich where we now live which has a long term tenant on a yearly shorthold tenancy agreement. I am still caring for my mother so have no income whatsoever apart from the two rental incomes – which total £11,640 a year gross. We have a mortgage of £65,000 interest only and the two properties are worth approx £220,000 in total.

I also have inherited a house from my father which I jointly own with my brother which is where me and my husband currently live, my brother is not pushing us to sell and this has no mortgage. It is worth approx £500,000.

My husband is a CCTV engineer so earns a decent, but not high salary. This year, I filled in my own tax return as I was still under the tax threshold, but next year, I will be slightly above.

I am wondering what the best way forward is to keep all things legal and avoid making schoolgirl errors! Any advice/thoughts as how to improve my income would be appreciated!

Emily



Comments

Neil Patterson

9:51 AM, 7th November 2016
About 2 years ago

Hi Emily,

I am sorry to hear about your mother.

The good news about your accidental portfolio is that with your very low mortgage gearing it seems possible that Section 24 and the reduction in mortgage interest relief could very well have little impact on you initially. Assuming the properties are in your name, but you can manage this with Declarations of Trust if appropriate (please see >> https://www.property118.com/ownership-restructuring-for-tax-purposes/ )

The new tax issues really arise if you are planning on increasing your portfolio and using finance to do so, but then you could consider using a Limited company.

Dependent on what your plans are I would recommend you use a good accountant who understands property investment to manage everything in the most tax efficient way especially taking into account your retirement planning.

Emily Callaghan

11:05 AM, 7th November 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "07/11/2016 - 09:51":

Hi Neil,

Thank you for posting my question.

I need to do the declaration of trust then as they are in joint names. My husband is way under the £43000 limit in his earnings. As the interest rate is so low at present, I am also considering changing the mortgage onto my property that I live in, which would be a lower rate so we can also pay off the capital. Is there anyone that I could approach to guide me (I am happy to pay for advice) on here as I am totally clueless as to where to find the right people.

Thanks again for your advice which has already been extremely useful!

Neil Patterson

11:13 AM, 7th November 2016
About 2 years ago

Hi Emily,

I would start with a great accountant. Please see the members profile and contact form for Neil Barlow at Pacific Limited who are the accountants we have used for over 20 years >> https://www.property118.com/member/?id=452

You should also find our tax planning page helpful >> https://www.property118.com/tax/

Emily Callaghan

11:33 AM, 7th November 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "07/11/2016 - 11:13":

Thank you so much! I have sent a request to them - they are also local to me. Perfect.

Richard U

12:57 PM, 7th November 2016
About 2 years ago

Reply to the comment left by "Emily Callaghan" at "07/11/2016 - 11:05":

Hi Emily,

I think it's hard to comment on the small amount of information you have supplied. But, I can say I think it would be sensible to have a plan and consider the following:

If you want to use property as a pension income, then you need to have paid-off the mortgages by that point. How do you plan to do that?
Is the income you are making enough to fund retirement? Are you willing to take more risk? Your gearing is low, so perhaps you could expand your portfolio further? Or you could invest take your equity and put it in a pension - there may be tax benefits... (but clearly this would add to your costs short-term and it sounds like you need to maintain your income? I hope you are managing to put some rental income aside for a vacant periods/unusual repairs? This is particularly important if you rely on the income to live...

Emily Callaghan

13:39 PM, 7th November 2016
About 2 years ago

Reply to the comment left by "Richard U" at "07/11/2016 - 12:57":

Hi Richard,

Thanks for your comments. Yes, I do need an income of sorts. I am thinking of changing the interest only mortgage to a repayment, paying off the buy-to-let one with a owner occupier one on my house that I live in which is mortgage free at the moment. My husband earns enough to keep us with my funds used for holidays, meals out and paying for any rental property expenses. The house in Northumberland is 21 years old so in good repair and the tenants are very good and treat it like their own - redecorating etc, which we go 50% on if its new carpets etc. The flat in Norwich is an ex-council. Not the nicest, but in fair conditon in a 1970's 2 story block with tiny maintenance charges. We are thinking of upgrading the heating there - the tenant has been in situ for 5 years and wants to stay. My idea (might be not the best as I have no idea what to do really) is to keep the two rental properties for income, and when we get to our 70's, to sell and live off the pot of money. We have no children and what happened to my parents (saved all their lives and both became very ill and were unable to enjoy t he fruits of their labours) has taught me a rather hard lesson on the value of putting everything away for a future that may not happen. We used most of my father's saving pot to build an extension on the house where we live, which obviously was still a good investment, for them to both live at home. After over 5 years of caring, I have become exhausted and have had to sadly recently find a care home for mum, who remains very disabled needing 24 hour care. I am trying to balance, enjoying a reasonable standard of living now with the 'what if's' of the future. We both do have private pensions but the forecasts for these are dire.

Old Mrs Landlord

15:22 PM, 7th November 2016
About 2 years ago

Too late now, but from what you say it looks to me as though you would have been eligible for Carer's Allowance from the time you gave up your job. Did no-one mention this to you? Caring relatives save the state thousands, often at great personal cost.

Richard U

16:33 PM, 7th November 2016
About 2 years ago

Reply to the comment left by "Old Mrs Landlord" at "07/11/2016 - 15:22":

Emily, whilst you are right you can pay less interest by having a mortgage on your residential property, you cannot offset the interest for tax purposes - you could therefore end-up paying more...(you state that you are below the threshold, so this may not be a problem today) I think you are right to seek advice - if you don't feel confident researching this yourself.

On the face of it, your greatest asset is your house - some of which you don't use anymore. I appreciate most people have an emotional attachment to the homes, but if you were prepared to move to somewhere less expensive, you could bolster your pension pot/property portfolio dramatically.

Emily Callaghan

17:43 PM, 7th November 2016
About 2 years ago

Reply to the comment left by "Old Mrs Landlord" at "07/11/2016 - 15:22":

Hello Old Mrs Landlord,

thanks yes I did have carers allowance - £62 a week. Not really much considering but better than nothing. I have now given this up as from this week when my mother entered the care home full time.

Emily Callaghan

17:50 PM, 7th November 2016
About 2 years ago

Reply to the comment left by "Richard U" at "07/11/2016 - 16:33":

Hi Richard,

you are right, but as the house is owned jointly with my brother, I would rather stay put as I have no energy left to move at present. It does hold enormous emotional ties on us both as it is our family house, owned for 45 years. I am seeking advice as I do need to make some sort of financial plan to make sure that my affairs are correct and making me the best income/tax efficient arrangement possible. I am not a risk taker so probably will not add any more properties especially as the government seems to have it in for private landlords. This site has been a great help to me already.

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