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Btl As A Business


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Yep I know these areas too. Leave the house vacant for a few days and it will be stripped clean of any copper. The local hoods will be putting the windows in. Good luck getting a full months deposit from perspective tenants. You'll have to fully furnish the place and will probably have to redo it ever year. Those gross yields will be nowhere near 11%.

Coupled with the callouts at all hours saying the heating isn't working (ran out of oil and needs bled) or the light bulb has blown.

Not worth it.

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  • 1 month later...

Uk - unrelated to NI but may be of interest to some. Bit of a mixed bag. Resching saturation point, perhaps.

Rental costs see first fall in 10 months, LSL says

http://www.bbc.co.uk/news/business-16199840

The fall in the cost of renting coincided with a decrease in the number of tenants getting behind on rent payments.

"We are still also seeing the impact of a changed tenant mix, which is helping keep arrears below historic levels," Mr Newnes said.

"A large proportion of current renters are would-be credit-worthy buyers, were they able to provide a big enough deposit to satisfy tight mortgage lending criteria. These tenants are typically financially sound, and less likely to experience payment issues."

However, the economic climate and the risk to jobs meant tenant arrears were likely to rise again next year, he added.

Edited by Shotoflight
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  • 4 weeks later...

UK

Mortgage squeeze fuels surge in buy-to-let investors

Buy-to-let investors are emerging as one of the surprise beneficiaries of the famine in mortgage lending, according to new research.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8999282/Mortgage-squeeze-fuels-surge-in-buy-to-let-investors.html

The share of residential housing stock owned by private landlords has jumped more than 40pc since the financial crisis, and now makes up almost a fifth of the total, according to estate agent Savills.

The tighter lending standards introduced by Britain's banks since the crisis have created opportunities for some investors, as the pool of potential homebuyers shrinks.

And, according to Savills, rather than the house price appreciation that lured investors during the boom, it is the prospect of rising rental income that is proving attractive. The volume of mortgages handed to private landlords jumped 16pc to £3.8bn in the third quarter of last year, according to the Council of Mortgage Lenders.

Despite the sharp drop in house prices since the recession, and the expectation of a further decline this year, first-time buyers are struggling to secure a foothold on the property ladder.

Evidence of a resurgence in buy-to-let investors is likely to increase political pressure on the Government to take measures to help first-time buyers.

The booming rental market is being echoed in America, where the collapse of the economy's house price bubble is forcing more people to rent. Home ownership levels dropped to 66.9pc last year from 70pc in 2005.

More at link

http://www.housepricecrash.co.uk/forum/index.php?showtopic=173742

Edited by Shotoflight
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  • 3 weeks later...

UK

Buy-to-let booms despite mortgage squeeze

Property values are depressed and tenant demand strong, so is this the right moment for investors? Sarah Davidson reports

http://www.independent.co.uk/money/mortgages/buytolet-booms-despite-mortgage-squeeze-6296117.html

It's hard to call a surge of activity in such a subdued economy a frenzy but as far as success stories go in 2012, buy-to-let is one to watch.

Mortgage lenders, still cautious about lending to residential borrowers, are stepping up their efforts in the investment side of residential property. And more finance means more opportunities for would-be landlords.

Meanwhile, lenders are piling back into buy-to-let because low interest rates, depressed property values and strong tenant demand make the perfect storm for investors.

Rightmove's Miles Shipside says there are nearly three times more buy-to-let mortgage products available than two years ago. "With low yields on most alternative investments, 2012 is potentially a good year for investor landlords to expand their portfolios," he claims.

Rents and tenant demand vary locally affecting the likelihood and length of void periods. Local unemployment and cuts in public spending can also impact on tenants' ability to pay and LSL research shows 10.7 per cent of all rent was either late or unpaid at the end of last year.

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Locally I think we are going to see rent market flat for the next few years or even rentals going down. If you look and propertynews and have propertybee probably about half the properties have reduced the monthly rent by 30, 50 (a few examples by 100, 200) quid in the south Belfast area. Could be argued that it wrong time of the year to be trying to rent but the summer will show whether this is the case. Students simply cannot afford any increase in rents, DHSS are having housing benefits cuts. If you are classed as "professional" you now have a wider choice of areas as other homeowners rent their house instead of selling - waiting for the recovery and so called normal house prices to return.

Think yield for a btl would probably be normally well under 10% and would probably be less than 5% but it hard to think of anything (investment wise) that would give you this return.

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Think if you are individual and you own the property it would be at normal income tax rates (20% normal rate and 40% higher rate) on the net profits but i could be totally wrong?

Yep its treated like any other profit, if you are receiving rent as a sole trader its is the same as any other untaxed income, some costs are allowed to reduce profit, but with less allowances on what you can claim for than a normal business.

For example they really do not want you claiming for assets as capital allowance, eg furnishing a house before renting is not allowable and depreciation is not allowed. Hence when you fill out a self assessment they is a special section for 'income from property'. This is mainly so you cannot claim the value of the house or payment in your tax, but you can claim interest on a mortgage, maintenance, legal fees, efficiency improvements etc.

If your total revenue (including your normal wage) is >£70K a year you have to charge VAT aswell and pay that to the gov't.

All very complicated, I still don't full understand it and shall avoid it in future.

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What tax is payable on rental income?

Its pretty much the same as any other business. You pay tax at ether 22% or 40%, depending on your overall income.

The tax is paid on profit. Your profit is calculated, just like any other business on your income less your allowable Costs. Costs will include, just like any other business, interest, maintainance, an amount for wear & tare (10% of rent). What you cannot deduct is loan repayment.

If you have rent of £550 per mth that is income of £6,600

Interest on £75k loan say £3,000

Other expenses £800

Total profit £2,800 taxed at 40% = £1,120

Cash for debt repayment £1,680

If your wife or husband is on a lower tax band you can use that to lower the tax to 22% (save £500).

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Is property better than a pension for your retirement nest egg?

http://www.telegraph.co.uk/finance/personalfinance/pensions/9044861/Is-property-better-than-a-pension-for-your-retirement-nest-egg.html

Roll back to the middle of the last decade, before buy-to-let played its part in bringing the economy to a halt, and it seemed everyone was building their retirement on bricks and mortar.

The credit crunch may have brought buy-to-let to a near standstill in 2008 and 2009, but all the signs are there that it is starting to make a gradual comeback, with the number of landlords taking out mortgages for buy-to-let properties growing by 16pc in the third quarter of 2011, according to the Council of Mortgage Lenders.

For those with money to invest, it is easy to see why. Rising rents have seen yields on buy-to-let properties jump to 6.6pc in the fourth quarter of 2011, having stayed within a range of 5.9pc and 6.3pc for the previous five years, according to lender Paragon.

Danny Cox, head of advice at Hargreaves Lansdown, said: "Yes, the income from a buy-to-let property looks generous next to the rates on offer from annuities, but once you have bought an annuity, it will pay out forever, and payments are backed by the Financial Services Compensation Scheme.

"If you only have one property and you find it cannot be let for some reason, or if you face a significant bill for repairs, or you get to retirement and you haven't paid off the original loan, then you are going to be in trouble."

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Its pretty much the same as any other business. You pay tax at ether 22% or 40%, depending on your overall income.

The tax is paid on profit. Your profit is calculated, just like any other business on your income less your allowable Costs. Costs will include, just like any other business, interest, maintainance, an amount for wear & tare (10% of rent). What you cannot deduct is loan repayment.

If you have rent of £550 per mth that is income of £6,600

Interest on £75k loan say £3,000

Other expenses £800

Total profit £2,800 taxed at 40% = £1,120

Cash for debt repayment £1,680

If your wife or husband is on a lower tax band you can use that to lower the tax to 22% (save £500).

I always have a problem with treating a home an investment.

These calcs are perfectly sensible but I disagree with a govt policy that allows someone to outbid a family on a purchasing a home when one set of calcs are based on getting tax relief on interest while the other is not. Although BTL is seen as a business I feel that the impacts on society are very different to running a car dealership business or a hairdressers. Many may disagree with my view and I'm not sure I have an elegant solution to this problem (bring back MIRAS?), but open to comments or views.

I see it a bit like

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I always have a problem with treating a home an investment.

These calcs are perfectly sensible but I disagree with a govt policy that allows someone to outbid a family on a purchasing a home when one set of calcs are based on getting tax relief on interest while the other is not. Although BTL is seen as a business I feel that the impacts on society are very different to running a car dealership business or a hairdressers. Many may disagree with my view and I'm not sure I have an elegant solution to this problem (bring back MIRAS?), but open to comments or views.

I see it a bit like

The problem is you cant make exceptions. If a shopkeeper rents a building her can list the rent he pays as an expense. If he buys a van on HP he can offset the interest against profit. If he buys the building he has to be allowed to offset the interest against profit.

Its the same if he rents out the apartment above. He is taxed on the income less the expense of interest, rates and looking after it.

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We should set up a club, I buy a house you want, and you buy a house I want, rent them to each other and offset the expenses (free decorating and furniture).

Any extra left over can be put in an ISA to pay the capital at a later stage.

We could get necessary legal documents drawn up.

We could probably get residential rates with consent to let.

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The problem is you cant make exceptions.

You can make exceptions. You may not like it but they are made by Govt all the time in many different areas of legislation not just tax.

VAT on books and Childrens clothes is one that easily springs to mind. There are also tax breaks for tech companies and innovators. It is not rocket science.

As for Property?For example - you cannot have residential property in a SIPP. Why not make *residential* property tax law *slightly* different from buying a van for a company? I reckon if it had been different then we may not have had such a large boom. The root of the problem was cheap credit but to create a system where Mr A could MEW his own primary residence to buy a second BTL property and gain all the tax advantages in my mind helped us to spiral out of control.

I have no problem with a developer buying, demolishing redeveloping etc I just don't like the idea that someone can outbid someone else on a house because they get tax breaks/incentives over another person.

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You can make exceptions. You may not like it but they are made by Govt all the time in many different areas of legislation not just tax.

VAT on books and Childrens clothes is one that easily springs to mind. There are also tax breaks for tech companies and innovators. It is not rocket science.

As for Property?For example - you cannot have residential property in a SIPP. Why not make *residential* property tax law *slightly* different from buying a van for a company? I reckon if it had been different then we may not have had such a large boom. The root of the problem was cheap credit but to create a system where Mr A could MEW his own primary residence to buy a second BTL property and gain all the tax advantages in my mind helped us to spiral out of control.

I have no problem with a developer buying, demolishing redeveloping etc I just don't like the idea that someone can outbid someone else on a house because they get tax breaks/incentives over another person.

+100

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You can make exceptions. You may not like it but they are made by Govt all the time in many different areas of legislation not just tax.

VAT on books and Childrens clothes is one that easily springs to mind. There are also tax breaks for tech companies and innovators. It is not rocket science.

As for Property?For example - you cannot have residential property in a SIPP. Why not make *residential* property tax law *slightly* different from buying a van for a company? I reckon if it had been different then we may not have had such a large boom. The root of the problem was cheap credit but to create a system where Mr A could MEW his own primary residence to buy a second BTL property and gain all the tax advantages in my mind helped us to spiral out of control.

I have no problem with a developer buying, demolishing redeveloping etc I just don't like the idea that someone can outbid someone else on a house because they get tax breaks/incentives over another person.

I think we are getting confused here. You pay tax on the income on your second home. It is not exempt. You get a capital gains exemption if you live in the house. an investor will not. He has to bear that in mind when buying. It is extremely difficult to make exceptions, even for the government, that will stand up in court. I dont think this would.

If someone MEW's their own residence that implies they take a loan against the paper equity or increase their existing mortgage. In either of this the loan is registered against the primary residence and interest on that loan cannot be attributable to any part of a separate loan on an investment property. So in the case you described there is an actual tax disadvantage to the person buying the second home.

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I think we are getting confused here. You pay tax on the income on your second home. It is not exempt. You get a capital gains exemption if you live in the house. an investor will not. He has to bear that in mind when buying. It is extremely difficult to make exceptions, even for the government, that will stand up in court. I dont think this would.

If someone MEW's their own residence that implies they take a loan against the paper equity or increase their existing mortgage. In either of this the loan is registered against the primary residence and interest on that loan cannot be attributable to any part of a separate loan on an investment property. So in the case you described there is an actual tax disadvantage to the person buying the second home.

I believe he meant MEW for a deposit rather than the full amount. Then claim the interest back.

Edited by 2buyornot2buy
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Also worth pointing out the BTL doesn't have to meet the affordability criteria the family would have as it would be based on rent payments being 125% of mortgage. The injustice of housing benefits strike a again...

But they do require to be earning a minimum of something like £30k a year.

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I think we are getting confused here. You pay tax on the income on your second home. It is not exempt. You get a capital gains exemption if you live in the house. an investor will not. He has to bear that in mind when buying. It is extremely difficult to make exceptions, even for the government, that will stand up in court. I dont think this would.

Well the gov't does make alot of exceptions in tax to encourage this, discourage that and it is a mine field to navigate, not even HMRC people can do it, you need a specialist to advise you! You cannot do a self assessment and run a day job aswell.

Tax generally was supposed to be on 'profit', however they got carried away with adding exceptions because of things like the fact they don't like people enjoying themselves and getting tax relief on it (eg entertainment expenses). Business actually need 2 sets of (legal) books, tax accounts and normal account.

It is also a helpful definition of a business (eg ebay sellers), if you make a profit you are a business that needs to pay tax on that profit.

I'd prefer a much simpler system where owners where taxed on capital gains (you pay tax on your saving interest!, they might see the negative side to selling at the highest price possible.

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I think we are getting confused here. You pay tax on the income on your second home. It is not exempt. You get a capital gains exemption if you live in the house. an investor will not. He has to bear that in mind when buying. It is extremely difficult to make exceptions, even for the government, that will stand up in court. I dont think this would.

If someone MEW's their own residence that implies they take a loan against the paper equity or increase their existing mortgage. In either of this the loan is registered against the primary residence and interest on that loan cannot be attributable to any part of a separate loan on an investment property. So in the case you described there is an actual tax disadvantage to the person buying the second home.

I agree in normal circumstances. But what happened was that people could MEW, sell a car, borrow £10k interest free on a credit card for 18 months - lets call it seed money - and then use that as a deposit on a BTL property. Once one property is done that way then in the boom they could MEW on the perceived increase in the value of the property and do it again and again - and with a tax advantage over someone simply wanting to buy a home.

The point I am making is that a house offered at £100k was more likely to be bought by a BTL or flipper because 1) the calculation they use involves tax incentives and 2) the bank viewed them as low risk as they had a portfolio.

Cheapo credit will always cause problems, but worse when it is spent on something that most has seen as a necessity. Whether a home owner or renter the dramatic rise in property caused the cost of housing to go up. Cheap credit aimed at tulips or widgets may not have had such an impact on society that cheap credit for home loans has had all over the world.

You stated that "The problem is that you can't make exceptions" - clearly you can and the Govt quite often does in many areas of business. You have still to convince me otherwise.

I am not averse to BTL as a business but I am still uneasy as to how to make it work without impacting on society as it did recently.

Edited by mmca22gr
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Boom time for buy-to-let loans

http://www.belfasttelegraph.co.uk/business/business-news/boom-time-for-buytolet-loans-16112305.html

The buy-to-let loan market is "blooming", with 100 more deals on offer than a year ago and lower typical interest rates, research has found.

There are 486 buy-to-let mortgage deals on the market, up from 386 last February, website Moneyfacts said. The average buy-to-let loan rate has fallen from 5% this time last year to 4.79%.

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Time to stop rogue landlords ripping off tenants

http://www.belfasttelegraph.co.uk/opinion/columnists/lindy-mcdowell/time-to-stop-rogue-landlords-ripping-off-tenants-16111752.html

You know the way nobody has ever actually met the Yeti? Other phenomena we've seen little hard proof of over the years ...

Have you ever known anybody who has had their entire deposit on a rental property returned by the landlord?

Fair play, then, to UUP MLA Michael Copeland who has raised the matter with the Department for Social Development and who is arguing that we need a system like the Tenancy Deposit Scheme that operates in Scotland.

The rental housing market is flourishing as never before. Far too many people are being ripped off.

Extortionate landlords are getting the arm in.

And right now there's not a whole lot to stop them.

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