1st time buyer letting new property

S

shank

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Hi all,
I'm a first time buyer buying a new home, so no stamp duty. I want to let the house out for a few years before possibly moving into it myself.

Just wondering what are the implications of doing this are?
How do I calculate the tax on the rental income and what happens when trying to sell it.

Thanks alot
Shane
 
I was wondering the consequences of doing this too (FTB rents out house in the first 5 years)

I assume this would happen....

1: You would no longer be a FTB and would be changed to a status of "Investor". Therefore you would have to pay back the stamp duty that would have applied if you bought the property as an inverstor in the first place

2: You would loose your Mortgage Interest Relief

3: You'd pay tax on your rental income from renting the house
 
See my comments in this thread. I think they cover most of the issues involved. The key issues are SD clawback, CGT on some part of the eventual resale gain, income tax on rental income less allowable expenses (including mortgage interest), non qualification for owner occupier mortgage interest relief at source, possible need to inform lender and put in place non owner occupier insurance. Where will you be living in the meantime? From what you say you are not actually a first time buyer owner occupier at all but an investor even if the investment property will become your PPR later on. If in doubt get independent, professional advice on the investment and tax implications of your plan.
 
Thanks Clubman,
our idea was to buy a house and rent it out in Kildare. However we would rent in Dublin city centre since closer to work for the next year or 2.

From what I can gather we would have to pay stamp duty clawback of 6% unless we sold the property within 5 years??? acc to

With regards to tax on rental income, how can I calculate what the mortgage interest would be on a 320,000 loan with 3.1% tracker rate over 35 years? I'm thinking that rental income and mortgage interest would cancel each other out so no tax to pay or am I grossly mistaken here?

Yes, I understand that we would pay tax on any profit made when selling the property.

If we are treated as investors, does that mean we would still be first time buyers on buying another property (that we would be owner-occupier on) or do we lose the first time buyer privilege also?

Thanks alot
Shane
 
shank said:
From what I can gather we would have to pay stamp duty clawback of 6% unless we sold the property within 5 years???
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No - if you buy as an owner occupier but rent the property out within 5 years of purchase then you are liable for the SD clawback (i.e. the difference between what you paid and what an investor would have paid) immediately. If you are buying the property to rent out immediately then you are not, in fact, a FTB owner occupier but an investor - even if the property becomes your PPR later on.
With regards to tax on rental income, how can I calculate what the mortgage interest would be on a 320,000 loan with 3.1% tracker rate over 35 years? I'm thinking that rental income and mortgage interest would cancel each other out so no tax to pay or am I grossly mistaken here?
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You can use Karl Jeacle's mortgage calculator to estimate the mortgage interest payable. You should not assume anything in this context - such as the mortgage interest cancelling out the rental income leaving no tax liability. You need to crunch the numbers carefully and maybe get professional advice.
If we are treated as investors, does that mean we would still be first time buyers on buying another property (that we would be owner-occupier on) or do we lose the first time buyer privilege also?
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You lose your FTB status if you buy an investment property as your first purchase.
 
Ok, thanks Clubman. You've cleared up alot of issues for me. Cheers
Shane
 
Always double check advice poster here. I, for one, am not a tax expert nor do I work in the finance industry.
 
I had been intending on buying a house with my girlfriend but I am put off by this as we are both contracting and could have to move from here in a years time. I would prefer to rent while we are gone, but if we would lose all the benefits of first time buyers then we may be as well off not to buy at all.
 
In themselves the loss of your FTB status and the tax implications of renting it out don't necessarily make it a non-runner. You'd need to crunch the numbers to get a better idea of whether or not the proposition is worth it/viable.
 
Shank,

you can avail of the rent a room scheme, i think €7600 rent received is completely tax free.
but it must be your PPR
you could leave the box room free, say that you have been staying there while liveing elsewhere, tenents may claim rent relief on the the individual rooms but this would not cause any problems with regard to the tax man
May not suit if your not buying a 3/4 bedroom apt/house
 
showmedmoney said:
you could leave the box room free, say that you have been staying there while liveing elsewhere
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This seems to be a recommendation to engage in tax evasion. Nobody in their right mind would recommend this as a prudent or viable course of action due to the illegality and risks involved.
 
Hey Clubman,
I was reading the Hooke and McDonald 2005 property guide last night, don't know if you have ever seen it, but it was "vaguely" saying in the investment section (section 30 & 31, pg 65 & up) that a first time investor buying a new property can avail of an immediate tax refund with the right tax structure??? They gave a few examples but on a 250,000 house, you would get 30,000 back, which obviously would cover stamp duty and fitting out costs.
However, I've never heard of this tax refund before or seen it anywhere else. Any idea on what they are talking about here or what does it relate to? Cheers
Shane
 
I don't know what "right tax structure" they are referring to here. Sorry. Maybe a tax expert can comment?
 
It is morte than likely referring to registering vor VAT, waive short-term lettings exemption and charging VAT on the rentals

On this basis you could reclaim VAT on the initial purchase which is around 11.89% of the sale price

There are plenty of threadds discussing this arrangement as there are advantages and disadvantages

I havbe performed this for a lot of clients but I have probably advised even more not to go ahead with it

You need to ascertain is it suits your situation

[email protected]
 
The actual processes would have little in common

But the one thing the two actual processes would have in common is that they are very specific in nature as to the pros and cons of each

As you said that in most cases purchasing property through a company structure is usually not the best way to go

But as with all tax related matters there are specific situations where certain structures can be very beneficial

[email protected]
 
Thanks. I totally agree with your last point in particular and would further recommend that people obtain independent, professional advice on their own specific situations in contexts such as this.
 
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