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Sell let property & invest to replace income?

Investment discussion for beginners. Why you should invest your money, get help getting started
000methyl
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Sell let property & invest to replace income?

#204693

Postby 000methyl » March 1st, 2019, 6:16 am

Hello,

Was not sure which topic to post this under but as I am a beginner thought I could start here. My situation is complicated with a lot of other issues but for a start my main question is about my let property.

I left the UK in 2007 and let out my 1 bed home which I had been living in. I intended to have a year or so off travelling but ended up not going back.
I am registered as a non resident landlord, the property has a mortgage which I can't really change deal on as I would not qualify for a new one, I only now pay the Interest, its variable but guaranteed to be no more than 2% over BOE rate + and extra 1% fee as its let.

Its let by an agent, after the mortgage Interest, insurance, agent fees etc it leaves about about 295GBP per month, once maintenance fees, safety checks etc are added it works out to be something around 230GBP per month average income.
My worries about the property are that the Interest rate will go up, agent fees will go up once tenant fees are banned in June 2019 or there is a large expense like a new boiler or kitchen. On the plus side it has always rented quickly and there has never been more than a few days between tenants. My case for keeping the property has always been that its a good investment in a fairly desirable location, and that the property is available to me if I ever needed to return to the UK. I do rely on this monthly income to live even though is a relatively small amount by UK standards.

In Sept 2017 the property was valued at 125-130K, so most likely if I sold the property I would have around 62-68K after mortgage is paid off (if unlucky it could be as low as maybe 55K or very lucky maybe as high as 72K).

So the question is, if I was to sell the property what could I do with that money to replace the monthly income from the let property?
(5% on 62K is close to 260GBP per month). I wouldn't want too much risk to the capital but accept there has to be some.
My early thoughts are things like ETF with monthly dividends, crowdfunded buy to let or student properties, I have been thinking about it for a while but just don't know where to start.


Any advice appreciated.

kempiejon
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Re: Sell let property & invest to replace income?

#204721

Postby kempiejon » March 1st, 2019, 8:49 am

230 per month, on say 60k give you around 4.5% yield. A FTSE100 tracker or ETF would offer about that. Plenty of income Investment Trusts on a similar yield.

nmdhqbc
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Re: Sell let property & invest to replace income?

#204725

Postby nmdhqbc » March 1st, 2019, 9:13 am

000methyl wrote:(5% on 62K is close to 260GBP per month).


Income Investment trusts would make sense here. I'd suggest a hand full of them for diversity but will use the usual go to of CTY...

https://www.hl.co.uk/shares/shares-sear ... st-ord-25p

At the current price of 404p per share that will yield about 4.48% looking forward and taking into account 0.5% stamp duty. Lower than the 5% you mention. However I'd guess that the income from IT's like CTY will grow quicker than your buy to let income would. 50+ years of dividend increases for this one. Some historic dividend data here. Need to do some sums to work out the % increase each year but it's a longer history than you get on the HL site above.

https://www.stockopedia.com/share-price ... dividends/

000methyl wrote:I wouldn't want too much risk to the capital but accept there has to be some.


You hit the nail on the head - you do need to accept the capital value will fluctuate. It has to be long term with these things. However, the same could be said for your buy to let. The value of that probably had it's ups and down over your ownership period. Only difference is the value is not quoted minute by minute on the internet. I'd fully expect these things to half but then recover in time. Does not bother me as I don't need the capital just the income.

For a look at the past price volatility see the chart below. It has a bug where the current price is in pence but historic in £ so you need to move it to the right a touch to see it properly. But this chart seems to go back further than others I've seen.

https://uk.finance.yahoo.com/chart/CTY. ... FydCJ9fX19

Lots of other Investment trusts around with different remits. Maybe read around the boards for suggestions.

Alaric
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Re: Sell let property & invest to replace income?

#204728

Postby Alaric » March 1st, 2019, 9:18 am

000methyl wrote:I have been thinking about it for a while but just don't know where to start.


One starting point would be to check where you stand on tax, both in the UK and your country of residence. Whilst investing in shares via ETFs or ITs could well make sense from an income perspective, it isn't if switching from property gets you clobbered by tax.

colin
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Re: Sell let property & invest to replace income?

#204891

Postby colin » March 1st, 2019, 6:27 pm

Alaric wrote:
000methyl wrote:I have been thinking about it for a while but just don't know where to start.


One starting point would be to check where you stand on tax, both in the UK and your country of residence. Whilst investing in shares via ETFs or ITs could well make sense from an income perspective, it isn't if switching from property gets you clobbered by tax.


If the property valuation increases over the holding period it would be better to be clobbered by tax sooner than later and re invest in an asset class on which capital gains tax can easily be avoided.

000methyl
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Re: Sell let property & invest to replace income?

#204938

Postby 000methyl » March 2nd, 2019, 3:35 am

Thanks for replies so far.

A lot of things to think about and lots to research, will look into the income investment trusts.

Tax is quite a big and complicated issue. I spent a long time finding out about CGT if I was to sell my let property, CGT is exempt for non residents for gains made up to 5 April 15, Lettings Relief is being abolished next year, and Private Residents Relief for the final period of ownership is being reduced to 9 months from 18 months.

For dividends I read there is a 2,000 allowance then a 7.5% rate for basic tax payers, but can you use your normal personal allowance for this also, so its treated like normal income (unlike CGT) ?

Another point is because I am non resident would I be able to open an account to buy these types of investments, for example I looked at the Vanguard website and it says for UK residents only.

monabri
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Re: Sell let property & invest to replace income?

#204953

Postby monabri » March 2nd, 2019, 8:22 am

£2000 tax free allowance on share divis only applies if you are a UK resident.

The tax on dividends will depend on where you live.

If the Vanguard product says 'for UK residents " then it means for UK residents...noting that , for instance, if you were buying their products in the US, they could be called by slightly different 4 letters 'ticker' names.

As the property is not your main home ( you live abroad) then you may well be clobbered for CGT...once again, it depends where you live in the world.

PinkDalek
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Re: Sell let property & invest to replace income?

#205021

Postby PinkDalek » March 2nd, 2019, 12:27 pm

000methyl wrote:Tax is quite a big and complicated issue. I spent a long time finding out about CGT if I was to sell my let property, CGT is exempt for non residents for gains made up to 5 April 15, Lettings Relief is being abolished next year, and Private Residents Relief for the final period of ownership is being reduced to 9 months from 18 months. ...


Ignoring the changes you mention, have you tried playing with the HMRC calculator to get a feel for your potential CGT liability (under current legislation)?:

Calculate your Non-Resident Capital Gains Tax
https://www.tax.service.gov.uk/calculat ... -resident/

Bearing in mind the 6 April 2015 valuation rebasing method is not the only option. Depending on the numbers and how long you've owned the property, the straight-line apportionment method possibly may suit you.

PinkDalek
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Re: Sell let property & invest to replace income?

#205219

Postby PinkDalek » March 3rd, 2019, 4:17 pm

Returning to this part:

000methyl wrote:Lettings Relief is being abolished next year, and Private Residents Relief for the final period of ownership is being reduced to 9 months from 18 months.


I was aware of those proposals but the Budget papers included (my bold):

Capital gains tax – To better target private residence relief at owner occupiers, from April 2020 the government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. The final period exemption will also be reduced from 18 months to 9 months. The government will consult on these changes. There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.

I have yet to find the Consultation. Does anyone know if this has been enacted (wef 6 April 2020)?

000methyl
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Re: Sell let property & invest to replace income?

#205794

Postby 000methyl » March 6th, 2019, 2:25 am

Thanks yes I have used the CGT calculator to get an idea of how the rebasing and straight line apportionment works.

As far as the Lettings relief and PRR, I did contact HMRC they did not seem very up to date on it, at first telling me something which I was fairly certain was wrong, so after they went away to check with the technical experts it was as I suspected wrong.

HMRC told me the legislation (FA2018) needed Royal Assent, so I took that to mean it had passed through parliament already?

PinkDalek
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Re: Sell let property & invest to replace income?

#205876

Postby PinkDalek » March 6th, 2019, 11:07 am

000methyl wrote:As far as the Lettings relief and PRR, I did contact HMRC they did not seem very up to date on it, at first telling me something which I was fairly certain was wrong, so after they went away to check with the technical experts it was as I suspected wrong.

HMRC told me the legislation (FA2018) needed Royal Assent, so I took that to mean it had passed through parliament already?


You raised an interesting point and I'd forgotten about the proposals (btw I think you mean FA2019). Having replied to you here, I therefore decided to investigate further and commenced a new topic at Taxes, as linked below:

viewtopic.php?f=49&t=16560

As far as I can see, the changes are not yet in force (but may well be by 6 April 2020). May I suggest we continue over there or at least wait until Eboli or someone else updates that topic.


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