remortgaging to release equity and the tax man

working_mum_3

I currently own a mortgaged home but am working abroad so the house is rented to cover costs. No profit is made hence no tax is paid. I want to try and release some equity to invest elsewhere, but how does the tax man treat a remortgage ?

To keep me under the tax threashold I want to keep my mortgage repayments as they are now . Can I :

1) remotgage and switch to a interest only ( so I take a larger mortgage but the int payments similar to what I pay now).

2) Borrow the money from an overseas bank at a lower rate - thus borrowing more money but still keeping the interest repayments the same.

Are either of these options breaking some kind of tax rule ?

Euphoria1z

dont think you will pay any tax on equity released as thats like a loan. you would however declare your rental income and pay tax on this if your making a profit after allowable expenses.

Thrugelmir

If you increase the amount of interest you are paying, by increasing the size of the mortgage, then you will be make a loss on letting the property. If your statement that you aren't making a profit currently is correct.

dunstonh

Thrugelmir wrote: »

If you increase the amount of interest you are paying, by increasing the size of the mortgage, then you will be make a loss on letting the property. If your statement that you aren't making a profit currently is correct.

Which will blow most lenders out of the water on a buy to let mortgage as they require the letting income to be enough to cover the mortgage.

Wh05apk

From a tax point of view you can only claim interest, not the capital element, but you can claim interest on the original mortgage, and any subsequent mortgages up to the value of the property when you first starting renting the property out.

grogdog

working_mum wrote: »

I currently own a mortgaged home but am working abroad so the house is rented to cover costs. No profit is made hence no tax is paid. I want to try and release some equity to invest elsewhere, but how does the tax man treat a remortgage ?

To keep me under the tax threashold I want to keep my mortgage repayments as they are now . Can I :

1) remotgage and switch to a interest only ( so I take a larger mortgage but the int payments similar to what I pay now).

2) Borrow the money from an overseas bank at a lower rate - thus borrowing more money but still keeping the interest repayments the same.

Are either of these options breaking some kind of tax rule ?

it is only the interest part of mortgage payment that can be offset against tax not the full repayment amount.

working_mum_3

OK, I seem to have got myself confused about something - can you please help me to clarify :

I know that I can only claim the interest on the mortgage, So I presume my attempts to raise capital by remortgaging are :


1) Increase the amount of the mortgage - which will probably incurr higher interest. AS this is not what I want to do (as I still want to keep the interest amount the same) this seems like a non-starter.

2) But what if I can increase the mortgage amount at a lower rate - I take some capital and the repayments are still the same .

Thus I am still filing my return with the SAME amount of interest payment. AS theres no difference compared to previous tax years - is this OK ?

Thrugelmir

working_mum wrote: »

Thus I am still filing my return with the SAME amount of interest payment. AS theres no difference compared to previous tax years - is this OK ?

If you are on a repayment mortgage then the amount of interest will vary.

As although the repayments remain the same every month. The split between capital and interest will not. Progressively the amount of capital will increase as debt is repaid.

I suggest you consult someone regarding your self assessment tax returns. As misdeclarations can incur penalties for misfiling, together with penalties and interest on unpaid tax.