Evacuating then renting then mortgages and a bit on relationships

[Steve Ireland]

My partner and I have been intending to move out of an apartment with our young kids. As we talked it out I started thinking that I might be able to make something of this.

10 years into 30 years and the outstanding (tracker) mortgage amount is now less than two thirds of the estimated apartment value. At the moment, if we moved out we could expect to collect enough rent such that 55% of the rent would pay the monthly mortgage amount.

If I collect the rent myself, the taxable income would all be in the 40% bracket.
My partner is in PAYE and currently earns a gross that falls a few thousand short of the 40% cut off. She is looking into going part time, which would bring her existing income down by about half.

What if she took all the income from the rental and put that into her own tax return (even though the it's only my own name on the deeds, I figured/guessed it's up to me who I allow to collect and keep the revenue and it would stay in her account. She'd manage the property. We're not yet married.) expensing the cost items like service charges and repairs. The she'd mostly be within the 20% tax bracket.

We could then rent somewhere cheap enough and see if we could put money aside to increase monthly savings (I already have fairly large savings but haven't contributed to them for years - they're more of a buffer - and have instead been maximising my pension contributions each year). I'd then be looking to see if we could try for a second mortgage down the line based on how we handle moving out and renting for a few months (a year/however long) .

Further down the line, I could even look at whether the pension is still necessary; if I can slowly start to develop more income from rental instead.

I'm outlining all this in case someone can immediately punch holes in it but I really want someone that I can talk to face to face about all this stuff. I just don't know exactly what they're called or who they are. I can find a solicitor or an accountant but my experience has been that their skills are often focused on a particular angle in their field while this seems kind of overarching.

Can you tell me who this person is/these people are? I googled it and got Consumer Help, Citizens Advice and MABS...

Thanks

S



This reads back like an exam question.

TLDR: I have lots of questions about income tax, mortgages, pensions, renting. Is there a type of individual who can consult on all of these things? If so or more than one, what are their job descriptions and where can I find them?

 

[Brendan Burgess]

(even though the it's only my own name on the deeds, I figured/guessed it's up to me who I allow to collect and keep the revenue and it would stay in her account. She'd manage the property. We're not yet married.)

Hi Steve

This is your apartment and your mortgage? If so, then you would be liable for tax on the rental profit. You can't just allocate it to someone else because their tax rate is lower than yours.

Which lender is the mortgage with? If it's with one of the active lenders, you can move the tracker to another property, although the rate would be increased by 1%. This would seem to be the best approach rather than renting out the property.

You should stop contributing to a pension until you have sorted out your family home. The exception would be if your employer matches your contributions.

She is looking into going part time, which would bring her existing income down by about half.

She should stay working full time while you are considering taking out a mortgage. If she has only half her income, the amount you can borrow will be lower. If she has started a new job, they might ignore her salary altogether.

 

[Brendan Burgess]

TLDR: I have lots of questions about income tax, mortgages, pensions, renting. Is there a type of individual who can consult on all of these things? If so or more than one, what are their job descriptions and where can I find them?

There really is not any one person who can answer these questions and give you good advice. For example, a solicitor may not realise that you can port your tracker to a new property.

That is the beauty of askaboutmoney. I have suggested some broad general principles. Others will raise issues which I have not considered.

You can probably work out a plan based on the Askaboutmoney discussion and then run it by a solicitor, an investment advisor, a tax advisor and a debt advisor.

 

[Bronte]

As far as I know even if you were joint owners you wouldn't be able to just allocate the rent to the lower tax paying person.

Unless you put up actual figures it will be very difficult for other posters to advise you - have a look at the money makeover thread. Be careful if you rent that you don't lose your current tracker rate.

 

[Mrs Vimes]

Could possibly pay the girlfriend to manage the property and then she could pay tax on the management fee, not sure if Revenue would accept it as a bona fide arrangement though.

 

[Steve Ireland]

Hi Brendan

Thanks for the responses.

This is your apartment and your mortgage? If so, then you would be liable for tax on the rental profit.

The mortgage was guaranteed by my father so both our names are associated with it but I'm the one making the payemnts.

Which lender is the mortgage with? If it's with one of the active lenders, you can move the tracker to another property, although the rate would be increased by 1%. This would seem to be the best approach rather than renting out the property.

The AIB tracker is 0.9 above ECB so the extra percent seems unattractive. I assume you mean that I could offload the apartment and transfer the mortgage. I don't want to offload the apartment firstly because it's still about 5% shy of the price I bought it for 10 years ago (so not much of an earn for 10 years investment) but also becuase the rental income potential from it is so good in Grand Canal Dock area.

You should stop contributing to a pension until you have sorted out your family home. The exception would be if your employer matches your contributions.

I'm self employed for last 15 years and had no pension until about 2007. So I wanted to get it up as quick as possible - I'm kicking on 40. Also, the contribution comes off my income tax. I can put 10K into my pension and give 5K to Revenue or not do the pension and give Revenue 10K. The former is more appealing. I only contribute to the max allowed as a tax deduction.

 

[Bronte]

The mortgage was guaranteed by my father so both our names are associated with it but I'm the one making the payemnts.

.

Goodness me you never mentioned that very important fact originally. It's 10 years in, and your father signed a guarantee with no end. That should have been rescinded long ago.

 

[Bronte]

Could possibly pay the girlfriend to manage the property and then she could pay tax on the management fee, not sure if Revenue would accept it as a bona fide arrangement though.

They may not be married but they have kids together so it gets messier, it wouldn't pass for bona fide I would have thought. Having said that, the girlfriend doesn't own it and you are allowed hire relatives to do work for you.

 

[Brendan Burgess]

The AIB tracker is 0.9 above ECB so the extra percent seems unattractive. I assume you mean that I could offload the apartment and transfer the mortgage. I don't want to offload the apartment firstly because it's still about 5% shy of the price I bought it for 10 years ago (so not much of an earn for 10 years investment) but also becuase the rental income potential from it is so good in Grand Canal Dock area.

Hi Steve

Let's look at these reasons one by one.

The extra 1% means you will be paying 1.95% on your mortgage, which is still very cheap.

The value of the property today is what it is. It is absolutely irrelevant that it's worth less than you paid for it. It's simply not an issue.

You have a wife and young children. You should be prioritising buying a home. An apartment in Grand Canal with a cheap tracker is a great investment. But a family home with cheap tracker is also a great investment.

Also, the contribution comes off my income tax. I can put 10K into my pension and give 5K to Revenue or not do the pension and give Revenue 10K. The former is more appealing. I only contribute to the max allowed as a tax deduction.

Your priority is to buy a home and to have a sustainable mortgage. You have 25 more years to make pension contributions. The less your borrow, the lower your mortgage rate will be, permanently.

There is a great thread on the topic here

Pay down your SVR mortgage before starting a pension, but don't leave it too late