Renting your house on posting - new tax implications?

[Melchett01]

In case people weren't aware, the recent budget contained changes to tax treatment of Buy To Let properties which could likely see significant tax rises for BTL landlords. I didn't see the budget myself, but this is featuring heavily in the Telegraph this weekend, and one would almost be forgiven for thinking this was being snuck in under the radar. I don't know.

Death of buy-to-let: landlords wake up to Osborne's 150pc tax - Telegraph (http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11816720/Death-of-buy-to-let-landlords-wake-up-to-Osbornes-150pc-tax.html)

What has this got to do with mil aviation many PPruNe purists will be asking. Well nothing in the sense that it isn't per se about flying, but service personnel may find themselves on the wrong end of this if they are posted away from home and end up renting their house out. In the past tax was only payable on profits i.e. after mortgage interest was taken into account. Under this measure tax will be payable on turnover i.e. whatever you receive in rental income pre-tax. Some of the examples given in the DT suggest a tax rise approaching 90%, although this is probably at the extreme end of things and makes for good copy.

However, it strikes me that service personnel are potentially going to be dragged in to this involuntarily because they are required to move and don't want to step off the property ladder or hope to return home down the line. Furthermore, what if having paid elevated tax for several years a service person decides to sell up and HMRC refuses to accept that it was the individual's main residence because it's been rented? Would they then be liable for CGT on the sale creating a possible double whammy?

I don't have any answers, but talking to friends currently on NATO tours and renting their houses out whilst away there appears to be limited awareness of this move and the possible implications for service personnel. I would like to think that MOD will be aware and already engaging with HMRC to ensure service personnel are not disadvantaged. Hopefully Al will be along to shed light on the best place to turn for advice!

[AutoBit]

In my experience most mortgage companies will allow you to stay on you existing mortgage terms if you can prove that you are military and posted over-seas (JPA assignment order).

[Jumping_Jack]

'In my experience most mortgage companies will allow you to stay on you existing mortgage terms if you can prove that you are military and posted over-seas (JPA assignment order)'

They certainly did for me, and it didn't necessarily have to be overseas either.

[Moi/]

I have a house, and a BTL.

We have 18 months ish before it comes into effect, by then it may be clearer on how to avoid the increases.


The rental income we receive is somewhere £5400 a year, therefore not a huge amount. It clears about £600-800 a year profit after all deductions.


Reading through the increases, it seems that we may be best selling up... what this will mean is that as of 2017, more BTL houses are being dumped on the market, forcing house prices down..


Or...i could keep the property empty, but i would be liable for council tax at 100%.




Someone...did say that if i turned it into a property business, this is not applicable..

[Bob Viking]

If your wife stays at home with the kids you can always transfer it into her name. A solicitor can draft a declaration of trust for you. If she has no other income, the chances are that your rental income will fall below her personal annual tax allowance.

It's worked for our family for a good few years now. Nationwide have also allowed us to be on a consent to let for over 8 years now due to my military employment.

BV

[Moi/]

That is probably the solution until she finishes university, and earns over the tax threshold. We have thought about it in the past, 99% and 1%... with the profit so little, it was determined not to be worth it.

I usually use LandlordZone for advice...

[BEagle]

When a 2-bed semi-detached house costs £250K, how will any first-time buyers afford to pay for a mortgage?

Regrettably, avaricious absentee landlords snapped up a lot of such houses some years ago during the last property slump - and now rent them out for ridiculous sums, knowing that their tenants have little alternative. Hence they're often shared by people who each need a car (or, worse still, a company van) for work, who don't give a stuff about the local environment....

If the brainless Osborne hikes up taxes yet further, the situation will only worsen.

Property speculators, greedy estate agents and buy-to-rent landlords are all responsible for the ridiculous price of houses nowadays - but what can anyone do?

[Courtney Mil]

BEags, I have to agree. In this instance, if you are posted and want to keep your property and let it, fair enough. And those folk should find that they will be given fair exclusion by presenting evidence that JPA can provide. If you are serving and playing the property rental game, you will be caught up in the new changes; and why should it be any different?

Let on posting should not affect your situation.

[Whenurhappy]

We've rented our house as a high-end holiday let property. It is quite lucrative and we have it valued as a small business, so there's no council text and currently zero business rates. We've been overseas for the last 5 years in practical terms, and short of leaving the house vacant, we don't have an option. Having it as a rental property means we can block out weeks for our own use (our kids go to a nearby school as boarders). We pay tax, obviously, but I have written to HMRC for clarification on the new rules. Nothing heard now for 6 weeks...and we will look at transferring the majority of the property to my wife's name as she is unable to work in our current posting.

We took out the mortgage through a good broker and pointed out very clearly that we'd be moving from time to time and therefore would intend to let the property. In our most recent move, our mortgage lender referred to our property as 'buy to let' and it took me three months of arguing and showing them the mortgage application and acceptance paper work to prove that it wasn't. They also paid me £500 in an ex gratis payment for 'making it up'. This isn't the first time I have had problems with lenders who, it seems, don't have access to the mortgage application and other details and drop SP into the sh!t through their own maladministration. Some years ago, after we bought our first property near Lyneham, after 3 years we were offered a 3 month 'mortgage holiday' as a valued customer. They did not explain the ramifications of the break (eg impact on credit rating) and eventually admitted that the offer had been made 'in error'. This was a well-known high street lender and I found that their records keeping was abysmal. Again, they eventually made good, repaired our credit rating with Experion and waived redemption penalties as we picked up a much better offer with another lender.

Lessons from this? Caveat emptor and keep all paper work and written notes of all conversations (on one occasion a bank claimed that I was in breach of Data protection legislation by keeping notes of telecons...)

[The Old Fat One]

I'm in the BTL game, both professionally as a CeMAP, and as a holder of a small portfolio. I have clients with much larger portfolios.

The article is alarmist - what else would you expect - and figures skewed for effect. I crunched the numbers on my portfolio and the effect on me will be marginal at best. Some of the figures in the article are unrealistic because the imply very high gearing on the property income which is hard to achieve...

a. Because BTL mortgages are typically 75% LTV.
b. Smart (which = successful, which = rich) BTL investors are usually not dumb and would not gear their portfolios this high.


As for some of the comments on here

Property speculators, greedy estate agents and buy-to-rent landlords are all responsible for the ridiculous price of houses nowadays - but what can anyone do?

House prices in the UK are driven by demand vastly exceeding supply. BTL is a bit part of this at most (and generally only in the city flat market). Estate agents have got absolutely nothing to do with the overall price of houses...that is tantamount to holding pilots responsible for the price of airline tickets.

Someone...did say that if i turned it into a property business, this is not applicable..

May or may not be true (depends on how the tax change is enacted) but pretty moot, because it is is extremely hard to get lenders to lend to a business and the LTV and chargeable rate would not be pretty.

In my experience most mortgage companies will allow you to stay on you existing mortgage terms if you can prove that you are military and posted over-seas (JPA assignment order).

True, remember informing the lender of you intention to let out your property is a covenant of your mortgage.

This was a well-known high street lender and I found that their records keeping was abysmal

Try working with them everyday :(

We took out the mortgage through a good broker and pointed out very clearly that we'd be moving from time to time and therefore would intend to let the property.

Not sure if this what you intended to type, but I suspect this is prior to MMR (mortgage market review April 2014). You cannot do this anymore. Either a mortgage is "residential" and therefore "regulated" or BTL and therefore "unregulated". Nowadays the broker/intermediary will ask you a question based on the 40% rule (and it will be written in the regulatory disclosure document) and a false statement/intent is mortgage fraud.

Notwithstanding my downplaying of the tax change, I am not at all optimistic about the future of BTL (but to be fair I'm not all optimistic about most things in the UK :)). The housing market in the UK is in total mess and drastic measures will be needed to fix it. BTL will inevitably suffer and I'm not sure it will be "soft" landing.

Personally I aim to get shot of my portfolio ASAP, but not primarily because of the tax change, I was headed that way anyway.

Finally expect more BTL regulation from the FCA this coming year.

PS

What will be amusing off course will be the panic stricken government reaction (read U turn) if they do succeed in crushing the house market. As ex CBI boss Digby Jones said back in 2010..."in the UK, the economy is the house market".

Coz we're a service economy innit.

[cockney steve]

Agree with T.O.F.O's analysis.

stupid political point-scoring and window-dressing obscures the fundamental problem....
The demand for housing exceeds the supply.

25K will buy you a reasonable, habitable house in Burnley, Lancs.
there is the slight issue of paucity of jobs, and the simmering undercurrent of Race - many will remember the serious riots a few years back.
there are plenty of crumbling terraces and back-to- backs to be had there, for 10 to 15 K.....now, were these houses in the south East......
Only when we have fast, easy, affordable primary public Transport and properly planned financial incentives, will there be a likelihood of decentralisation to the Regions.

If the Political will really existed, London could be made an economically unviable business centre for all but the highest-earning,most prestige-concious firms.
The "forced" decentralisation of the BBC to Salford has made a modest upward shift in house-prices. the constant traffic-jam and permanent "road works" on the M6 ...(at least 6 years around Birmingham) and the preposterous rail fares mean this move is a lot less successful than it could have been.
A massive building programme is needed, only when demand matches , or preferably exceeds supply, will house prices reduce....but they aren't making any more land, so the price on this crowded, septic isle continues to escalate.

Prepare for a sharp increase in rents when the tax -relief stops!... the clowns have not stopped to work that one out! Landlords are not charities, they rely on capital growth, security of investment and return on capital.
higher gross costs will be passed straight to the consumer , who will find the money, even if it means sharing accommodation with a stranger.
some may remember the withdrawal of multiple mortgage tax-relief....all sorts of multiple -occupancy groups formed in order to buy a house and lock-in to tax-relief. they all managed to save money over their previous renting....but the whole fiasco fuelled an amazing rise in prices, as did the short-lived change to Poll-tax, instead of property -value based rates.

[Heathrow Harry]

fine idea but the moment anyone suggest building on any site everyone local jumps up and down and screams blue murder

just look at the CPRE response to Osbournes suggestion that more houses should be built in villages...................

[Moi/]

I sense a divide in this thread...those who support BTL (i.e. those who have a property) and those who wish they had a BTL.


I purchased my first house in 2007, as a married SAC(T) (with children) on a single income... 99.9% of this forum are probably Officers, if I could afford to buy a house, then you certainly could of...

[salad-dodger]

I purchased my first house in 2007, as a married SAC(T) (with children) on a single income... 99.9% of this forum are probably Officers, if I could afford to buy a house, then you certainly could of...

They probably would know too that it is "could have" not "could of"

S-D (ex-airman)

[O-P]

S-D,

I expect your English to be 100% perfect in every future post. If not, the Pedants will rip you to bits.

O-P (ex-Airman, ex Officer)

Airman and Officer should be spelt with capitals...and your syntax is crap!

[Bigbux]

S-D,

I expect your English to be 100% perfect in every future post. If not, the Pedants will rip you to bits.

O-P (ex-Airman, ex Officer)

Airman and Officer should be spelt with capitals...and your syntax is crap!


O-P - Sorry, can't resist. The words airman, officer and pedants are not proper nouns, so they don't require capital letters. Do I get extra for a triple-word score? :)

[2Planks]

BB - perfect if only you hadn't hyphenated TRIPLE WORD SCORE


(I did get my Scrabble Board out to check. Now popping off to iron my socks)