RE: Buy to let mortgage choice and tax!

Printer

Right! Got some more questions if you don't mind Below is not fact, its just how i see things so if i am wrong please tell me!

I'm looking at BTL as an investment that one day i may move into myself....probably 5-10 yrs from now....

My BTL is on a repayment mortgage. Because of this the tax man will think i will make ~£50 per month profit but in fact will break about even due to it being repayment not interest only.

I earn 35k per year so this is added to that rental income and then i pay on the total. I also can (maybe) pay via PAYE in my wage slip as the rental yearly income is less then £15000. i got this infor from looking at the hmrc website. Has anyone done it this way and is it correct?

Does anyone know of a calculator that shows the tax required to be paid per year as the payments are made? I need to include this in my calculations..

Also, im torn between a slightly higher interest rate that allows 10% over payments per year or the lower rate that has no over payments.The difference is £5 per month more. Am i better off using the over payment scheme to pay off my mortgage quicker (could do it on 12yrs) to save on the interest? i ask because the more i pay off the more tax i think i'll pay, is this correct?
Also once paid off i will have a huge rental income i cant offset with the charges to reduce tax, ie i'll pay more tax once paid off. OR! should i pay the lesser interest rate with no over payments to reduce my tax bill at the end of the year but slowly over time pay a higher amount back to the mortgage company.?

One more thing..if i do decide to move in and still owe money on it, at the end of a BTL mortgage term (3yrs for example) the next mortgage i get can be a standard residential or do i still have to have another BTL mortgage?

I hope all of that made some sense and i'd love to hear your opinions!

Thanks!

silvercar

You've outlined all the reasons why people have an interest only mortgage on BTLs. If you don't want the higher tax bill then don't pay off the capital. But consider what is right for your circumstances rather than for the tax advantage, the tax situation should be part of the decision process not the controlling one.

If you live in the property you can get a residential mortgage, whatever your previous mortgage was.

Printer

Another question.....

i earn 35k per year. 33k salary 2k car allowance.

I won't make a profit on this house but it will cover its self with payments. Thing is do the gov take into account the repayment amount (rather than the interest only) of about £100 / month more towards my tax or the full 6k over the year i will make? Remember this will not be profit as i'll have loads of bills...do they take the tax before or after the fact....

Hope that makes some sense....

English_Bob

mmm intersting one! i'm trying to work this very thing out myself.
the Inland Revenue will only allow you to write off costs of the rental against your income eg any fees/bills/mortgage interest. They will also want capital gains on any increase in the value of the propoerty from when you start renting to when you finish.
The question is do you overpay the mortgage or put the extra cash (from not repaying the mortage) into an ISA.
Consider paying off £1000 from your mortgage. You do not get the benefit of £50 of tax from the reduced interest (BTL at 5%), which means you pay £10 more tax (at 20%).
Now consider putting that £1000 into an ISA. You can get £30 interest tax free.
Or a normal account (4%) You get £32 after tax.
It obviously depends on the numbers, but i think this sounds right. Someone will let me know if this is not correct.
I'm a higher rate tax payer with a BTL at 4% variable and no overpayment charges ( through Natwestone). Still not sure of the figures, will have to sit down with a pen and paper to work it all out.

English_Bob

How about just phoning the Inland Revenue and asking them. They are actually very helpful and not thbe enemy. All the dealings i have had with them,(we have bought and sold businesses and have had a full tax review including a six month long investigation and interviews with them),
they try to save you as much tax as possible and are pleasant appraochable people. (contrary to popular belief!)
I'm sure a long phone call to them will probably help you answer a lot of questions.

Bermuda_John

Regarding tax on a buy to let you offset the interest off the rent you receive whether it is capital repayment or interst only.

you can offset other cost such as use of home as office at £4 a week and if it is furnished a 10% wear and tear allowance

you dont get taxed on the capital gain until you sell it.