From: smithmp3@hotmail.com (Shano)
Newsgroups: uk.finance
Subject: Re: Letting / Tax query...
Date: 9 Nov 2004 00:59:54 -0800

"Geordie"  wrote in message news:...
> I currently live in a modest flat, and am looking to move into a new house
> in the next couple of months. I have had an offer accepted on the new house,
> and I have been accepted for a mortgage for it.
> 
> Because the mortgage I have on my current flat is relatively low, I have
> been thinking of converting the mortgage I have at the moment to a
> buy-to-let mortgage, and rent it out with the intention of it being an
> investment for the future.
> 
> What are the tax implications of doing this though? Will it be feasible to
> do this, or will I get hammered with a huge tax bill?
> 
> Any help is much appreciated,
> 
> Thanks,
> 
> Geordie

Ronald's provided a fairly comprehensive (if a little pessimistic)
reply. If I may inject a slightly more positive note here....

You should never look at an investment solely from a tax perspective.
Sure, get the grounding in what possible tax implications there are,
but always look at the commercial fundamentals first. Ensure that you
include all possible costs (including management of the tenancy, and
expenditure to ensure the property complies with all tenancy
regulations).

As Ronald stated, your existing mortgage will usually need to be
converted into a BTL mortgage (check out your mortgage terms), which
could be slightly higher than your existing one (you haven't provided
too many details of your existing mortgage, but presumably you've
taken advantage of the lower rates to remortgage at some stage within
the last couple of years?)

Are you after rental yield, capital growth, or a mixture? Yields in
the north of England are still anywhere up to 8%+, but in the south
can be as low as 4%. If your equity is sufficient (and therefore your
mortgage is lower) you can still turn a reasonable rental profit in
the north, which will provide you with some comfort in the event of a
rental void or a downturn.

I take Ronald's point that there is a possibility that your capital
value will decline over the next year or two, and if you were to sell
in three years' time you could be looking at a loss. However, you have
stated that you would like to hang on to it as an "investment for the
future". BTL should always be considered as at least 5 years, more
likely ten, to catch the next up cycle before cashing in the equity.

If the investment pays for itself (i.e. good rental yield, after
taking into consideration all costs including management of the
property) then why not hang on to it for another ten years of so?
After all, pick any year in the last 100 and ask yourself, how much
was that house ten years ago?

Shano
E&OE