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bigduckontax, Accountant
Category: Tax
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I've had a property . 9 years. Just refinancing

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Hi, I've had a property for approx. 9 years. Just refinancing on a BTL mortgage. Using proceeds to buy another BTL also - in my preferred area and one I'd look to hold for ever really - even pass to my kids one day.
Can I get tax advise as a Higher rate tax payer. Should I be buying in a company? Getting so much conflicting advise from yes absolutely for both to not worth it if you own less than 5 properties. Each will make me approx. £300 a month (£1,100 rentals + £750ish mortgage on each).
There will be repairs and upkeep to be done on both over the next 5 years but with governments changes to the way interest / mortgage payments are handled I don't want to be at a loss.
Customer: replied 2 years ago.
(Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. You will no doubt have seen the media comments tolling the death knell of buy to lets. Here is The Week's pithy comment on the effects of the changes to interest relief bring phased in over a period to be completed by April 2020. 'The overall effect of the new regime will be to limit interest relief to 20%, the basic rate of tax. Maintenance will continue to be able to be set against rentals, but if you do make a loss in a tax year that loss can only be offset against buy to let rentals, not against other income.' If you shift your buy to lets into a limited company then taxation will be limited to Corporation Tax (CT), currently 20%. However, on transfer you will be liable to Capital Gains Tax (CGT) on any gain made assessed at current market value, but you can exercise Incorporation Relief which merely postpones CGT until you ultimately sell your shares in the company. It's a classic Alice Through the Looking Glass situation, 'Jam yesterday, jam tomorrow, never jam today' and a prefect example of Benjamin Franklin's dictum that in life there are but two certainties, death and taxes! Those are the basics, I see you would like a phone call.
Customer: replied 2 years ago.
So if we take a step back . . .Say I buy the new property into a company. Stamp duty will be due (as it will anyway) BUT I could write off the mortgage payment - correct? As I wish to keep this property for my life time (at least that is the plan) This would be the most effective method - correct?What then about the property I own in my name. I've had it for 9 years - residential mortgage. If I sell it in 5 years time will I pay capital gains from the day I purchased to the day I sell? I bought it in a run down state and invested quite a lot to bring it up to standard. How would the exit form this property be affected?
Customer: replied 2 years ago.
Also assuming a rent of 1,100 + a mortgage of 750 how much tax will be paid by the time 2020 comes. As a higher rate payer I'm assuming 1,100 * 0.4 = 440 a month in tax - with a 750 mortgage that's a los of £90 a month - right or am I missing something?
Customer: replied 2 years ago.
I also heard someone on the tube say they were just going to setting up a letting company and have some sort of 'trust agreement' with the letting company so the income and charges etc pass through there?
Customer: replied 2 years ago.
Very confused - would appreciate a call also if you can answer those items via e-mail. . .
If the company bought the property then the element of interest in the mortgage repayments would be allowed against CT. Regarding your existing property the gain is calculated from the difference between the selling and the acquisition prices. The acquisition price is the purchase price plus the purchase costs including stamp duty plus improvements eg installation of double gazing, central heating, extensions etc, but not routine maintenance which is allowable against rentals. The selling price is net ie after deduction of selling costs. This gain is taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. Getting down to detail a rental of 1.1K will yield 13.2K of income. Taxed at 40% that is 5.28K tax less tax at 20% on the interest element of the mortgage only which you haven't given me, just the total repayment. Setting up a trust is a possibility, but consider the costs of setting up, paying trustees and the levy every 10 years. It all adds up and the advantages are probably not worth the candle. I would be delighted to receive a telephone call, but you have yet to accept my offer.
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Recalculation of your rental: 13.2K @ 40 % = 5.28K less 750 @ 20% = 1.8K, net tax due 3.48K