VeryMeanReversion Posted June 13, 2008 Share Posted June 13, 2008 I've noticed a few people have got themselves into rental chains. What's that you may ask. Well, when they can't sell the own house and have to move (work relocation in these cases), they try to sell their house, give up after 6+ months and then decide to rent. Turns out the people they are renting their house to are doing the same thing, as well as the people they are renting from. The common factor is that they can't sell at their asking price, won't reduce their asking price since they couldn't then afford to buy in the new location, and also think that the market is going to pick up next year and they can move properly then. ("Next year it will be OK" seems to be a common theme with people I talk to) So one little question for you is about tax of the rental income. Since they have to pay tax on the rent received on their house, can they offset the rent paid on the new house? Or are they stuffed? VMR. Quote Link to comment Share on other sites More sharing options...
Telometer Posted June 13, 2008 Share Posted June 13, 2008 Of course they cannot offset the tax. Stuffed. Quote Link to comment Share on other sites More sharing options...
kilroy Posted June 13, 2008 Share Posted June 13, 2008 Of course they cannot offset the tax. Stuffed. but they can remortgage to an amount such that the interest and wear and tear etc offsets the rental income. Obviously remortgage is for home improvement.... Quote Link to comment Share on other sites More sharing options...
VeryMeanReversion Posted June 13, 2008 Author Share Posted June 13, 2008 Of course they cannot offset the tax. Stuffed. If one owner is a 40% tax payer and the wife/husband is a 20% tax payer, then I guess the overall tax to pay is 30%. On a £1200 rental, that's ~£100 for the management fee and 30% tax on £1100 to pay so they only get £770 net. So they take a hit of £430pcm to effective swap houses. So over £5K per year in tax/fees on top of any drop in equity, ouch. I suppose that's what's meant by "renting is dead money" Should've sold. I did try and tell them last year. Nobody listens..... VMR. Quote Link to comment Share on other sites More sharing options...
moonriver Posted June 13, 2008 Share Posted June 13, 2008 Yes there must be a lot of these rental chains setting up now. I too have noticed how many houses go up for sale, don't sell...... then because the seller would rather do ANYTHING than reduce the price, up it goes for rent... Wonder how much this is slowing down the house price crash ? But surely somewhere in the near future, it must mean a recipe for forthcoming financial disaster for these people. I think there are many Estate agents agents pushing the purchasers to rent out their propeties that aren't selling now. I have noticed locally plenty of agents who are suddenly going into rental, because they must be making nil profit from property sales. Quote Link to comment Share on other sites More sharing options...
since the beginning Posted June 13, 2008 Share Posted June 13, 2008 Quite common for people priced out of their local markets during the Boom as well. The attitude where due to not being able to afford in say London, but prices are more reasonable in Doncaster so buy there and rent instead. Quote Link to comment Share on other sites More sharing options...
Wad Posted June 13, 2008 Share Posted June 13, 2008 This happened to me a few years ago. I went to see a house to rent in Oxford which the woman also had up for sale at a ridiculous price. We verbally offered to rent it and the woman immediatley went down to London the following day and put an offer in to rent a flat in SW1. We then found a nicer house and told the agent we were no longer interested and the agent told us that she would not be able to rent in London now that we had backed out. I still cannot understand why she didnt just sell her house and move to London properly rather than messing about trying to rent her property in Oxford out. Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted June 13, 2008 Share Posted June 13, 2008 This was how the Wilsons started. They moved to a new place with a new mortgage then rented out their original. Must be a good plan if they did it. Quote Link to comment Share on other sites More sharing options...
blackhole Posted June 13, 2008 Share Posted June 13, 2008 After witnessing a flooding in the rental market, you do wonder just how arithmetic poor and in denial owners really are! And just how much their denial will possibly hurt them this time around. Guess that'll explain why credit card companies can sell 16% APR cards, too. Quote Link to comment Share on other sites More sharing options...
right_freds_dead Posted June 13, 2008 Share Posted June 13, 2008 so to recap..... in order for entire chains of hpi enriched home owners to move, they require 1x fresh £200k mug at the bottom to prop up the pyramid. where did i put that deposit those poor things..... Quote Link to comment Share on other sites More sharing options...
frozen_out Posted June 13, 2008 Share Posted June 13, 2008 There was a full page ad taken out in our local paper a few weeks ago by one of the local EAs extolling the virtues of RTB. That's 'rent to buy'. Apparently they're desperate for rental properties and this is a way that people struggling to sell can move. I wonder if the banks are treating this as BTL. Which it blatently is. Quote Link to comment Share on other sites More sharing options...
EdiLass Posted June 13, 2008 Share Posted June 13, 2008 My neighbour put his flat up for sale in about March, its idenitical to mine, so I was interested to see that he hasn't sold or changed his asking price, or had many viewers. I have a mortgage on my flat, so I started to think about what I would do if I had to move and couldn't sell. I don't have to move at the moment, so its not a real issue for me, but I did think about the possibility of trying to rent out my flat, since rentals on the street are moving unlike places for sale. So I guess I can see the logic of it. Suppose you bought your home as an investment, well the worst time to sell an investment is when prices are low, you have to buy low and sell high. So what do you do if prices drop? You wait it out until they rise again. But a house is special in that you have somewhere to live, so in order to keep your investment from loosing you money, you have to rent it out and rent yourself until the property market improves. Now that is something that Kristy ought to work on, getting the government to cut tax on rental income, it would give the btl'ers a much needed break, and it would allow people to save their investments. What do you thing? Should I email her and suggest it? Quote Link to comment Share on other sites More sharing options...
CharlieChuck Posted June 13, 2008 Share Posted June 13, 2008 So one little question for you is about tax of the rental income.Since they have to pay tax on the rent received on their house, can they offset the rent paid on the new house? Or are they stuffed? VMR. They are liable for tax, but will only pay tax if they declare they are renting it out. I imagine a lot of them are keeping it hushed up. I supposed they're called the "Rent to Renters" (RTR). Quote Link to comment Share on other sites More sharing options...
Sour Mash Posted June 13, 2008 Share Posted June 13, 2008 They are liable for tax, but will only pay tax if they declare they are renting it out. I imagine a lot of them are keeping it hushed up.I supposed they're called the "Rent to Renters" (RTR). Indeed - I suspect that most of the rental cash will be quietly 'trousered'. I also suspect that more than a few amateur BTLers of the last few years are doing likewise and possibly not even informing their mortgage companies that the house isn't being used as their primary residence...... When the govt gets desperate for cash, I imagine there might be a bit of a clampdown. Quote Link to comment Share on other sites More sharing options...
moonriver Posted June 13, 2008 Share Posted June 13, 2008 Indeed - I suspect that most of the rental cash will be quietly 'trousered'. I also suspect that more than a few amateur BTLers of the last few years are doing likewise and possibly not even informing their mortgage companies that the house isn't being used as their primary residence......When the govt gets desperate for cash, I imagine there might be a bit of a clampdown. Interesting..... Yes, I bet a lot of people won't bother treating their ex home as a BTL once they have left it, and I also wonder how open the estate agents who are pushing them to rent out because they can't sell, have been about making them fully informed of the tax and mortgage implications of going into BTL. Quote Link to comment Share on other sites More sharing options...
Lone_Twin Posted June 13, 2008 Share Posted June 13, 2008 Interesting little anecdotal for this thread: A house not far from where I work was bought gutted and refitted over about 6 weeks, obviously a "developer" job trying to flip it back onto the market with an outside paintjob and a new loo. . Went up for sale with one Chiswick agent (Whitman and co.) not sold in 4 months on the market. So they tried renting it out instead. . One side of the sign said "for sale" the other "to let" I was going to post pictures of this schizophrenic house today but now overnight they have stuck it on with Foxtons!. http://www.foxtons.co.uk/search?bedrooms_f...mit_type=search . Cant sell it or let it, what on earth could the problem be? Must try the same through another agent....It couldnt possibly be the price could it? . divs. . ST Quote Link to comment Share on other sites More sharing options...
VeryMeanReversion Posted June 13, 2008 Author Share Posted June 13, 2008 Indeed - I suspect that most of the rental cash will be quietly 'trousered'. Another friend did this with an inherited property in Cherry Hinton, Cambridge. He rented it out for years but the Inland Revenue caught up with him and levied big fines for the unpaid tax. VMR. Quote Link to comment Share on other sites More sharing options...
pablopatito Posted June 13, 2008 Share Posted June 13, 2008 I wonder if the banks are treating this as BTL. Which it blatently is. Well, its not really, its RTB isn't it? Similar but different. This is what the people who are buying our house are doing, and I understand that they have changed their existing OO mortgage to an RTB mortgage. So I assume the banks treat it on the same terms as a BTL mortgage. Our buyers should be ok, because they have the type of house that is in high demand to rent, and they bought our house at a realistic price. But letting agents round our way are guilty of hyping up the rental market and the local rag is guilty of printing their lies in the form of "serious" articles. The local press is reporting rents are on the up, and the rental market is buoyant, but a few minutes with Property Bee confirms the opposite, rents are falling and properties aren't shifting. Once again the general public are being conned by a local media reliant on estate agent advertising. Quote Link to comment Share on other sites More sharing options...
Dylan Posted June 13, 2008 Share Posted June 13, 2008 The tax man has a ready-made list of properties now with the deposit protection scheme. Of course, the owners could also not register there, but then they risk a fine of 3x the deposit. Quote Link to comment Share on other sites More sharing options...
Elizabeth Posted June 13, 2008 Share Posted June 13, 2008 Indeed - I suspect that most of the rental cash will be quietly 'trousered'. I also suspect that more than a few amateur BTLers of the last few years are doing likewise and possibly not even informing their mortgage companies that the house isn't being used as their primary residence......When the govt gets desperate for cash, I imagine there might be a bit of a clampdown. More difficult to quietly trouser when if you don't register the rental deposit you can face paying your tenant up to 3 times the value of the deposit... yum yum, justice http://www.tenancydepositclaim.com/ Quote Link to comment Share on other sites More sharing options...
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