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While theoretically on paper, for one year, I get £770 pcm net, it is the process of having to SAVE EXTRA money to ensure that I can honour HMRC's ADVANCE PAYMENT ON A/C for the FOLLOWING tax year (17/18) that leads to a massive reduction in REAL profits from my BTL. My tax liability for 16/17 was £7500 , so by July, I would have paid HMRC a total of £15000!! leaving me very little to enjoy! All this plus:
1.Current uncertainty around UK economy.
2.Current Govt. introducing further BTL tax Grabs/Tweaks etc.
3.Good chance of a Corbyn Govt, and that would decimate BTL.
4.Little prospect of further capital appreciation.
5.With inevitable increase in regulations, Plus additional Hse refurb/maintenance costs, the Risk-to-Reward figures don't seem to add up anymore !!
All things considered, I think for someone like me with just One BTL (no mortgage|), now might well be the sensible time to sell up, unless of course I think it is justified to continue paying £15,000 a year in tax to keep an uncertain investment going!! Admittedly, with a 10-20 year outlook, hse values are likely to go up, but with shrewd Govt policies, any gain in property values is likely to be wiped out by govt's continued meddling in its attempt to "normalise" the market!!
While I don't have a crystal ball, all the evidence seems to be suggesting long-tern problems for BTL.
Please, can anyone inject any positivity into this every increasing conundrum !!!??(*Moderator note: Hyperlinks removed as member has not passed probation*).
You should speak to HMRC about reducing the payments on account to their actual estimated level.
I have persued this, and unfortunately £7,500 is the amount I would expect to pay the next tax year. I spoke to HMRC at length but I could see no difference between handing them the money over in installments or starting my own savings account to do the same.
That all sounds rather high! Are you declaring all possible tax exempt costs such as buildings insurance, maintenance etc...
Also probably not the answer you want as it is mortgage free. But have you considered taking out a mortgage to release some of the equity, on interest only? Most BTL lenders will let you raise at least up to 75% of what the property is worth, some lenders go up to 85% but more costly). you could then use the equity as a deposit on another BTL property (or 2) or invest in something else. Because at least then you will get some of the mortgage interest tax exempt. Yes I know you will be paying mortgage but I'd rather have access to my money than pay extra tax for no reason. Plus if you have another property or 2 will be wreaking the benefits of 3 sources of income coming I rather than 1.
Reason I suggest interest only too is because the only way to get money out of your property is to sell or re-mortgage it. Yes you will owe the whole mortgage at the end of the term but if you retain it for another 10 years or so should still have some decent equity as should have hopefully increased in value. Plus just means you can maximise rental profit on monthly basis as the way tax is now you would pay the same either way.
Just some food for thought!
Hi Aimee and apologies for my delay in replying. This is more than food for thought - it's Brilliant !
Basically, because my calculations are deliberately including Next yearsvcadvanced estimated tax bill/demand into my Current tax year , the figures are a lot worse than they seem. If I exclude the advance tax payment on account, then I'm making approx £720 profit pcm Net.
The equity release looks like the best option at the moment, although I may use the money for something else and not another BTL. Also, I get to keep my BTL and not pay any CGT. Selling the property would attract £100k CGT bill, which incentivises me to hold on to it until I die, enabling me to pass it on to family without paying the CGT !
Thank you so much ;-)
No worries! Glad it's helped! :-)