Repay BTL or home mortgage

Thrugelmir

saucerish wrote: »

I am a higher rate tax payer btw. Thanks:o

Then is BTL the most tax efficent investment for you?

As the rental income will be subject to 40% tax.

saucerish

Thanks again for the repies. The info from Clapton and Meeper especially. I did not know that. What about if you borrow more, after the initial letting to improve the property and this is added to the btl mortgage (or the other one fo that matter). Can you add this to the amount owed at the start in terms of what you count interest on for tax purposes?

saucerish

Thrugelmir wrote: »

Then is BTL the most tax efficent investment for you?

As the rental income will be subject to 40% tax.

Maybe not on face value but the bottom line is that someone else is paying the mortgage and hopefully will leave me a nestegg at the end. How could I get a return like that with any other investment?;)

Thrugelmir

saucerish wrote: »

Maybe not on face value but the bottom line is that someone else is paying the mortgage and hopefully will leave me a nestegg at the end. How could I get a return like that with any other investment?;)

The nest egg will be subject to CGT. Unlike other investments a property is a single transaction so you are unable to spread the gain.

saucerish

Thrugelmir wrote: »

The nest egg will be subject to CGT. Unlike other investments a property is a single transaction so you are unable to spread the gain.

That is a point. We were planning to hold on tothe property, not sell. Rent would then be taxable at higher rate but not when we retire (10 years or so later). To be honest we have had the BTL for 9 years or so and it is a pain in the neck but I find it hard to imagine another investment that would give be that asset after 25 years, given it is never empty, the rent covers the interest and repayment. However this would change when interst rates climb, therefore the initial question in the post.

Meeper

Your situation is unusual, as most BTL properties see the rent only covering the interest, not the repayment.

Thrugelmir

saucerish wrote: »

To be honest we have had the BTL for 9 years or so and it is a pain in the neck but I find it hard to imagine another investment that would give be that asset after 25 years,

Best part of the capital gain was made some years ago. Next 9 might not be so rewarding.

Leon_W

Seriously, it would be a good idea to speak to a tax adviser as a few hundred quid now could save you a fortune down the line.

I'd just move into the property for a few months and pay no CGT at all but that's me !

Gorgeous_George

I'd save the money elsewhere while rates remain low.

If you decide to overpay, I'd overpay the highest rate providing the tax situation outlined by clapton is correct (I think it is but haven't confirmed it).

If you would lose the tax relief then, with base rates at 0.5%, you would be better off repaying the BTL. However, if base rates rose to more than 3.5%, you would be better off repaying the residential (assuming 20% tax payer).

GG

jimmyboy420

CLAPTON wrote: »

you don't lose tax relief if you pay down the BTL mortgage; you can use the interest on your home loan to offset instead.

You can offset interest on capital up to the value of the property when first let out... it doesn't have to be secured on the BLT.

Hello,

I didn't know about this and I've probably lost some tax relief due to it in the past.

Can anyone point me to any HMRC notes that help with this?

Thanks,

James