Paying off Rental Property debt

English_Bob

I can't quite get m head around this one.
We are renting out a property that is valued at £300k for £16k pa (after expenses) and the interest rate for the buy-to-let is 4%. (We have added this house to our Natwestone personal mortgage.)
We write off the interest against the mortgage and pay 40% tax on the rest.
We are selling a business and could pay off our personal mortgage (and we will be debt free) plus another £150k from the buy-to-let portion.
If we do this we will not be able to write off as much against tax, but we will have less of a debt in the first place.
We would still pay 40% tax on any rent recieved as income.
Everyone says you should keep your business debts high, but i think that if i cannot get as much money from savings, that i should pay off the debt.
Note, i can withdraw on this money whenever i need it so it won't be tied up. We have no other debt.
Thanks,
Bob

silvercar

Probably as broad as its long.

If you had mortgage interest payment of £10000 a year and rental income of £10000 you would pay no tax and make no profit. You would then have your savings in the bank and pay 40% tax on the interest.

If you used your savings to clear your mortgage, you would have no savings interest but pay 40% tax on the rental income.

So if you can get a savings rate higher than your mortgage rate it is worth keeping the savings, if your mortgage rate is higher than your savings then you are better clearing the mortgage.