The "Buy to Let" option

If you choose to undertake a property for the purposes of letting it out to tenants, you will normally have to undertake a ‘Buy-to Let’ mortgage.

This has many tax breaks.

Any interest you pay on a buy-to-let property can be offset against tax, but capital payments cannot. Therefore interest only mortgages allow you to maximise your tax break, but if you wish to use the property primarily for capital growth and want the loan repaid by a certain point in time, then a repayment mortgage may be more suitable.

If any repairs are undertaken to the property in question, the receipts should be kept, as these costs can be offset against your tax bill. You must be sure that simply repair the problem, not improve it when repairing, as there are different tax concessions to this. For instance the Inland Revenue inform me that, you would have to buy a similar central heating boiler to the one being replaced, as a more powerful one will count as an improvement.

If letting agents or accountants are used, their fees can also be deducted against profits. If you are a 40% taxpayer, this means that using a letting agent is quite cost effective. Any VAT incurred with the letting of a property via Accountants and letting agents’ fees can also be deducted against your profits. Service charges, ground rent and buildings insurance (as typically found in leasehold flats) can also be offset against your tax bill.

You can claim 10% allowance for depreciation of furnishings per year – provided your property is furnished. ‘Furnished’ means with a fitted kitchen and bathroom under a tenancy agreement, but under Inland Revenue rules, you have to have furniture such as a sofa, beds and tables. You cannot claim wear and tear on items which cannot be moved, i.e., fitted wardrobes.

Capital Gains Tax will be liable on the sale of second property. The amount will depend on how much the flat or house has risen in value while you were renting it out and how long you have owned it. If you live in the house for a few months before you sell it, you may not have any Capital Gains Tax to pay, but this will be down to the judgement of the Inland Revenue, who review each case individually.

There are investment vehicles to which you can defer a Capital Gain. Please note that this is a high risk investment.

If you have change your current property to a Buy to Let and buy another to reside in, your existing mortgage can be used to offset the interest against the rental received. However, if you increase your mortgage after you first rent it out, the Revenue may not allow you to offset any more then the original amount (please check with an Accountant what is allowable and what is not).

There is no Capital Gains Tax liability on your main residence. If you move to another property, this then becomes your main residence. If you keep the previous house and rent it out, the Revenue give you a 3 year window to sell the property before you have any Capital Gains Tax liability.

Therefore, why sell if you don’t need to and don’t have to? (subject to certain conditions);

Why not rent one property out, release money from it and then use this to purchase your new property?

All these facts are provided as a guide and have been taken from the Revenue guidance booklets, but advice should always be sought from a qualified Accountant prior to making any decisions.

Lenders allow you to take differing maximum percentages of the property value as a loan. The maximums depend on the companies and the products on offer and can vary from 60%, 70%, 75%, 80% and 85%. The majority of lenders will allow you to take 85% as a maximum. At the time of writing, there are a number of companies that will allow up to 90% as a maximum loan.

Rates and fees are generally higher on a Buy to Let mortgage, but many clients look at this on the basis that if costs are added

to the loan, it does reduce the equity held in the property, but equally it reduces the Capital Gains Tax liability a little.

Generally, if you can offset the interest against the rental income, a higher interest means that you can offset more and you will owe less tax.

Different people have different views on investment returns and deals and it is imperative to get the full details on all that are available at that specific time.

Buy-to-let mortgages are not regulated by the Financial Services Authority.

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This website is the website for Charles Antony, an Appointed Representative of the Whitechurch Network Limited, which is authorised and regulated by the Financial Service Authority.

Your home may be at risk if you do not keep up payments on a mortgage or other loan secured on it.