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complicated situation advice needed


peace1968

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Hi all

I am new on here and I have a complicated situation as follows;

Single parent 2 dependant kids

I have 3 let properties they are in my sole name

2 are in negative equity

1 has approx. 10-15k equity

They are all let to long term tenants

I work and receive a low wage, full time but term time only approx. 9k per year

Previously I have claimed tax credit to top up my income as the rental after deductions wasn't high due to previous loss

This year there will be a small profit which I will declare to hmrc and tax credits

What I am worried about is the new universal credit as I have heard that you can't just declare income and that capital equity will be taken into account.

Will the negative equity be put against the equity when they decide this?

If I was to sell the property with equity the tenant would move out as soon as the sign goes up and I would struggle to pay the mortgageon an empty property, therefore to sell quickly I would need to go for a cheaper selling price and also incur costs plus cgt. So the actual equity would be less than my estimate above. If I sold the other 2 I would be in debt.

Is there anyone in a similar position where they receive low profit and also eligible for tax credit who can advise?

Many thanks

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If I was to sell the property with equity the tenant would move out as soon as the sign goes up and I would struggle to pay the mortgageon an empty property, therefore to sell quickly I would need to go for a cheaper selling price and also incur costs plus cgt. So the actual equity would be less than my estimate above. If I sold the other 2 I would be in debt.

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I can't answer all of your questions but I can offer a view on some of them.....

If you decided to sell the property with equity the tenant may not move out as soon as the sign went up. In fact it would be unwise to try to sell a property with vacant possession with a tenant still in situ. It would certainly be unwise to exchange contracts before the tenant has moved out.

You could try to sell WITH the tenant to another investor. This is often an attractive opportunity as the buyer would have no void period. You could do this thru an agent or by auction..

Whichever property you sell you will be liable for CGT on capital gain over £11k + buying & selling costs. CGT is 18% or28% depending on which tax band the capital gain puts you in. I suspect you could probably avoid any CGT liability.

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There are property investors out there that wll buy a property with a sitting tenant (me) but you may have to sell at slightly lower market price and the paperwork for the existing tenant has to be 100% accurate and preferably with a good rent payment history.

I agree with RL......Do not attempt to sell your property unless it is vacant possession as you cannot guarantee that your tenant will leave as soon as a for sale board goes up.

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Surely you don't mean a' sitting tenant' Mel? That usually means one NOT on an AST but a regulated tenant who cannot be evicted easily.

But I am sure you would buy a property with a tenant on a 6 or 12 month AST where you could guarantee knowledge of the move in date to be that on the AST?

A world of difference between the two.

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Yes, I meant a tenant in place on an AST Mortitia. I have also bought property from people in severe debt and then rented the property back to them after all the checks etc. but you do have to buy at a discount and not anywhere near market value obviously.

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Hi thanks for the advise, I tried to sell a property in the past with tenants and there was no interest, the tenants moved out as they wanted long term rental with security and no other tenants were interested in moving into a house short term with a for sale sign on it and therefore the property was empty for approx. 8 months before it sold. Therefore, I had to cover the mortgage while it was up for sale, this property is in a part of Wales that has been hit particulary hard since the recession and the property prices are still very low, with slow sales. This is why the other two are in neg. equity, rental income covers mortgages and costs and I will earn approx. 2k in profit, when added to my wage equals 11k and so I am eligible for tax credit. When the universal credit takes over if you have over 6k in capital they will deduct something like £5 per every £250 over the 6k, but if you have 16k or over in capital you are not eligible for any universal credit. Capital would be savings or equity in second property etc.

I am in this situation because I lost my husband, I had not previously claimed any benefit but now I need it, I definitely could not manage without it. I guess they want capital freed up so that people like me have to live on it until it runs out and then you could claim again. If I sell and do that I am then left with 2 properties in neg. equity and it would be a very long time before they would get back up to cover the mortgage especially as I can only cover patching up and repairs rather than upgrading them to a better standard.

My only thought is how likely it would be for me to get a further advance on the one with equity and use the money to do some upgrading. I am with Birmingham and midshires are they pretty easy going on further lending?

Thanks in advance

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Hi I don't know there is no information on how it will be decided and I don't know how they will be able to judge this because a market valuation isn't necessarily what you would end up with selling it for and there are also costs with selling that would have to be deducted on top of that. The only info I can find is very black and white, basically if you have 16k or more capital you will receive no help.

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I have never had any involvement with tax credits so can't make comment from experience, or knowledge of it.

But even in these days of benefit cut backs I don't see how a benefit can be denied due to some one sitting on an asset, cash flow wise that could leave many starving as realising an asset is often slow even if at all possible. Many assets are shared in partnership so not even under the control of the claimant.

Without surveys I don't see how an asset can be valued and that requires funding and time to arrange.

I'm sorry I can't offer advice I can only offer a cynical view.

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Do bear in mind that HMRC see 'profit' as different to what you see it, apologies if you already know this but don't want you to get caught out. For example if you have a repayment mortgage you can't offset all of that amount. They see only the mortgage interest as offsetable. I have three properties which I rent out, the calculations for HMRC sees us as getting about £12k a year of 'profit' but by my calculations it is not much above break even due to the mortgages and the odd bit of repair that can be only put down as a capital expense and we record to offset CGT in the future. HMRC can get really agressive on this sort of thing and although when we just had one property we were clearly below the income tax threshold we were advised by one HMRC advisor to not waste their time by submitting, and another saying that we should declare all income from property. They don't seem to know themselves sometimes. Of course being in Greater London we've seen value increases, but on a day to day basis that isn't any help until we pay of the loans in full which should co-incidely nicely with retirement and/or when dear daughter wants to get a home of her own we can stay in our own property and sell one of the investment properties to act as a very nice chunk of a deposit for her (unless things go wrong of course...). I don't know about tax credits to be able to advise I am afraid. Good luck!

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Hi thank you, these are what I have been told I can offset against tax;

Mortgage interest

house insurance

letting agent fees

gas safety certs

cleaning costs between rentals

repairs but not improvements

admin things like postage, stationary etc

I don't know but would like to know if these are included;

home office - % of my home bills

% of telephone bill

% of petrol

BTL mortgage life insurance

and anything else that I may have missed

Again thanks

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Utilities during voids

Repairs / maintenance

Postage

ISP costs

Books & publications

Printer cartridges

Cleaning materials

Stationary

Mileage costs @ 45p per mile or

Car capital allowances

Bank charges

Repairs to equipment

Training courses

Rent guarantee insurance

Other services provided by landlord for tenant

Advertising

Consumables

Computer software

Photocopying

Epc certificates

Capital allowances

Legal costs

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There are a few more.....I ran out of time...

+ Buildings & contents insurance

+ Accountant fees

+ Amortized fees for arranging mortgage

+ Use of home as office....various ways of calculating this

+ Legionnaires risk assessments

+ Electrical checks

+ Deposit protection costs

+ Inventory costs

+ 10% wear &tear on fully furnished

+ Ground rents

+ Service charges

+ Freeholder permission charges

+ Qualifying loan interest

+ Costs of remortgaging

You should keep records of mileage if claiming for travel & any capital expenditure if claiming capital allowances.

BTL mortgage insurance is not an allowable expense in my opinion.

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By the way it's not only loss of rental income when a property sits empty waiting for a buyer. I am in that situation now.....here's the (long) list of running expenses:

* Council tax £100 p/month after my 3 month 50% discount expired

* Electricity £30 p/month....just switched off the heating now the weather has got a little warmer.

* Service Charges about £70 p/month

* Ground Rent £7 p/month

* Travel Costs for regular visits.

* Mortgage interest only about £70 p/month

* Water & Sewage are nil cost

So I'm paying out over £270 p/month.....ouch.

Hoping to complete shortly after April 6th (new tax year).

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