Diary of a Buy to Let Purchase Part 16 - A year on my buy to let portfolio grows by default
A year on and Jeni Browne, Head of Sales explains how her life has moved on and she now rents out her former home. Find out how...
I can’t quite believe it, but I have had my buy to let for almost a year. And being honest, it’s been wonderful. I bought the property with a tenant in situ – a lovely couple who had been there for a couple of years prior to me taking over.
I am not kidding, I have heard from them only once in this last year, when the hot water stopped working. They organised a plumber, got it fixed, I got sent a bill and we all got on with our day. Other than that, they pay their rent like clockwork and everyone is happy. So far, so very, very good.
In an interesting twist, in September I moved in with my partner (landlord and co-habiting – I am a fully-fledged grown up these days!). The reason this is of interest is because I kept my house and rented it out.
So, I am now a landlord of two buy to lets.
I was lucky enough not to need to raise any money against my home to move in with my lucky fella, so instead of refinancing onto a buy to let mortgage, I called my lender up and asked them for permission to rent my house out. They agreed – yay! In mortgage terms this arrangement is called Consent to Let.
The reason this worked well for me is that my mortgage rate didn’t change, so I am paying a residential mortgage rate even though the house is rented out on a bona fide basis.
Now, for me there are three things here which were a slight drawback…
- Firstly, the lender will only allow me to do this for two years, and then I need to take my mortgage elsewhere.
- Secondly, my mortgage is on a repayment basis which means that the rent only just covers the mortgage payment – so no trips to Bluewater courtesy of my tenant for me each month.
- Thirdly and arguably the biggest, is that I own this property in my own name rather than through a limited company, so I am going to get crucified on tax going forward.
So, the plan is this… Rent out my house for a couple of years, pay HMRC a load of money, then assess the situation and decide whether to sell it and then buy something else through my company (tax efficient) or whether to hold the property for the long term, accept it’s going to cost me money each month but see it as a pension (which I would need to contribute to anyway).
Annoyingly (or not depending on how you see it), the house is a ridiculously good rental property and so if I were to sell and rebuy, I would probably end up going for something similar.
The other option is that I could sell it to my company. If I do this in the next year or so, there is no Capital Gains Tax as it was my home and the gain accruing whilst this was my “Principal Private Residence” is tax exempt. And then there is the rule that says that the last 18 months of ownership is automatically treated for CGT as if I was still living there. And then there is “Lettings Relief” which would give me another £40k tax free, and also £11k annual CGT free allowance... Thank goodness I have an accountant who can sort out all of this for me!
But anyway, if I do sell it to my limited company I would have to pay Stamp Duty (with the 3% surcharge) which, based on today’s value would be £26,000 – now I see that number, it would surely not be worth doing.
Hmmmm… Will kick the can down the road on that one for now.
And so there it is, from homeowner to landlord of two properties, plus I got a puppy (Otto, a Schnoodle). What a busy year it has been.
Diary of a Buy to Let Purchase
Follow Jeni as she recounts her experiences of becoming a buy to let investor for the first time.
Part 1 - It was that or a Range Rover
Part 2 - I've made £800 already and I haven't got the mortgage yet
Part 3 - The demise of Nathaniel Pig
Part 6 - Business bank account interview or Center Parcs?
Part 8 - The method behind the madness
Part 9 - Join me in a buy to let fist pump?!
Part 10 - The silence is deafening
Part 11 - Throwing toys out of prams
Part 12 - Stuck with the Mini... for now
Part 14 - The end of my sad little tale...
Part 17 - If Carlsberg made tenants - shame the same can't be said for the tax man
Part 18 - Always open the envelope
Part 20 - Buy to let mortgages and tenants are like buses
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
You may also be interested in:
Setting up an SPV Limited Company
Buy to let lenders which offer mortgages to limited companies usually require the limited company to be an SPV (Special Purpose Vehicle). Jeni explains what one is and how to get one.
Stamp Duty FAQs
Jeni answers the most commonly asked questions around SDLT - including information on mixed use properties and non-residential Stamp Duty rates.
Residential Stamp Duty Calculator
Non-residential Stamp Duty Calculator
21st March 2017
