should I pay off btl - bad tax move?

sorayascot

I have a buy to let mortgage of 25K on a flat of 100K. the flat brings in about £350/month after estate agent fees etc. I could now pay off the amount ( no redemtion penalties) but if I do then I lose the tax relief and I know I have to pay more tax. I just fall into the higher tax rate.

I can't figure out whether it is worth keeping the morgage for tax purposes vs peace of mind on paying off the debt?

Thanks

dimbo61

Do you have other debts or mortgage ?
You have a BTL property to earn an income and need to make best tax use of offsetting of the interest of your profit.
Build up your savings if no other debts

sorayascot

Hi there

We have already managed to pay off our home mortgage (by not moving to a bigger house with a bigger mortgage) and have savings of around 10yrs worth of ISAs.

We aren't really canny investors, rather we are accidental landlords as my DH had negative equity on the flat when we met 20 yrs ago and we couldn't sell so we rented the flat out t cover its costs.

We may never have a lump sum handed to us again so anxious to make sure that we make the most of it.

grateful for any advice.

anselld

It depends on your mortgage rate. If you can save at a higher rate than the mortgage then do so; If not pay it off.

Tax is a red herring - you will either pay it on your additional savings interest or your additional rental income.

diable

Speak to an accountant to limit your capital gains tax exposure and for advice on how better to resolve this issue.

TrickyDicky101

There's a lot to say for peace of mind - is the property in joint names and do both you and your husband fall into the higher rate tax bracket?

Thrugelmir

[QUOTE=sorayascot;42397590 but if I do then I lose the tax relief and I know I have to pay more tax. I just fall into the higher tax rate.

[/QUOTE]

You shouldn't just look at this issue in isolation. More as an overall tax planning and investment exercise. You could reduce your exposure to higher rate tax by making pension contributions for example. From next tax year (11/12) the threshold for higher rate drops to compensate for the increased personal allowance. So you could be close to the line anyway depending on your total taxable income.