BTL-the tax logic?

de1amo

İ often read about people holding on to their BTL mortgage instead of clearing the mortgage and i am trying to work out the financialy prudent way of dealing with it?
İ know the interest is tax deductable against rents but the fact you have to actually pay the interest at a higher rate than a normal mortgage or any saving rate gets me puzzling as to why not pay it off!
İ am considering renting out my only home in the uk and moving abroad--that raises other questions i will post elsewhere at a later date.

savinglikemad

can i bump this one up cause I too have asked this question but no one has given a reasonable answer, my BTL is 4.95 my private is .95 over base, same values surely paying BTL is best even after tax deductable

de1amo

its odd no one bites on this one--it is something that puzzles me and i cant get my head round it--for me it is a future plan but i have funds to bring my mortgage down to a minimum but i am wondering if it makes sense--

savinglikemad

I have tried my own thread on this in tax saving and got views but no answers I then hi Jacked another thread on similar vein but no good, I am in exactly same position as you, I have the cash waiting but dont want to throw it at my personnal mortgage which is currently £73 a month on £70k mortgage with rate of .95 over base 17 years to run, when I have a BTL of £62k costing £430 a month with 17 years to run. I know some of that is paying capital but I think the int is about £250 a month, which as basic rate tax payer my relief is £50 which still leaves me £200 I am paying versus my £70 hence £130 a month better of if I pay BTL. At least thats what I think but no one seems to agree or disagree. Perhaps if we keep bumping this up some one will help?

Senior_Paper_Monitor

Its not necessarily 'odd' that since:

1) the industry specialists who would be giving you their knowledge (which is how they earn a living) f.o.c, out of hours and 'on demand'

2) and even if inspired to do so there is insufficient information about a specific case (the property(if relating to yours)/portfolio details, current status of mortgage, other income, tax status, age, objectives etc) to enable an answer

the thread is not filling at the rate you maybe expected.

de1amo

you have put some bones on the question. i own my main home outright so the only mortgage is the 55k which i pay on İO of 2pc -92 quid a month. i am building a pot to cover the mortgage but it can be diverted to other assets if it is better to keep a BTL mortgage on the place.-i like the flexibility of cash with all this tied equity.

i am just a basic tax payer in the uk

Thrugelmir

de1amo wrote: »

İ often read about people holding on to their BTL mortgage instead of clearing the mortgage and i am trying to work out the financialy prudent way of dealing with it?

The recent boom in BTL was underpinned by rapidly rising capital values rather than income generation. So for many people the after tax income generated by a BTL alone will never fund the capital repayments on the mortgage. As the generated income (yield) is to low.

Many I suspect have never worked out their exit route. Merely relying on the boom of the past 15 years as a basis for future profit. Personally something I believe has no foundation.

The basic logic of repaying your residential mortgage first. Is that this is repaid out of after tax income. So using free cash to do this, reduces the mortgage which then saves more as the interest compounds. By reducing the BTL mortgage more income is subject to tax. So less cash is generated.

Of course depends what % interest rate you are on.

In addition for many. Their BTL income will be added to other earnings which may result in them moving into a higher tax bracket i.e. 40%. Which of course diminishes the return further.

de1amo

That raises a myriad of questions connected to my own position.
İn 3 years i am considering going abroad full time but retaining my property here--my logical aim is to clear the mortgage in that time and let the place to supplement my pension.--i have an occupational pension that is being drawn now that uses all my tax allowance but i am wondering how they work tax out if i am no longer a uk tax payer but have this income?
The current rent for the neighbouring place is 900 pm and i have a stoppage of 400 including the mortgage, agent fees renewals and everything--so 600 is the taxable profit.

Thrugelmir

de1amo wrote: »

That raises a myriad of questions connected to my own position.
İn 3 years i am considering going abroad full time but retaining my property here--my logical aim is to clear the mortgage in that time and let the place to supplement my pension.--i have an occupational pension that is being drawn now that uses all my tax allowance but i am wondering how they work tax out if i am no longer a uk tax payer but have this income?
The current rent for the neighbouring place is 900 pm and i have a stoppage of 400 including the mortgage, agent fees renewals and everything--so 600 is the taxable profit.

From the HMRC.

Letting agents, or certain tenants if there is no letting agent, must deduct basic rate Income Tax from the UK rental income if the landlord has a usual place of abode outside the UK. However, landlords have the option of applying for approval to receive their UK rental income with no Income Tax deducted by simply completing form NRL1 (PDF 205K).

The granting of approval does not grant exemption from UK Income Tax; any tax liability will be dealt with under Self-Assessment.

If the rental income is also charged to tax in your country of residence, then that country should give the relevant tax credit for the UK tax paid.

If you are not in Self Assessment, you have paid tax and want to claim a repayment, please complete and send us form R43.

If your rent is received gross and you did not receive a Self Assessment return, the tax return is not necessary if no tax liability arises.

If you jointly own the property, the income is usually shared equally; owners are individually responsible for any UK tax liability arising from their share of that income.

Therefore, each owner has to complete form NRL1 (PDF 205K), make a claim for repayment and complete a tax return in respect of your own share.

Further information about the Non-Resident Landlord Scheme is available.

http://www.hmrc.gov.uk

de1amo

My wife is foreign and not uk tax registered but obviously part owner by default--she owns our foreign businesses on which we are highly taxed--the hmrc refuses to give her even a temporary tax number to get allowance for her -she is not resident in the uk and her visa precludes her from any uk benefits or working here--

Thrugelmir

de1amo wrote: »

My wife is foreign and not uk tax registered but obviously part owner by default--she owns our foreign businesses on which we are highly taxed--the hmrc refuses to give her even a temporary tax number to get allowance for her -she is not resident in the uk and her visa precludes her from any uk benefits or working here--

I'm unsure where you reside.

If you are an individual not resident in the UK, you may claim tax allowances if:

you are a national of any European Economic Area (EEA) state, that is:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, United Kingdom
and also, for tax years from 2004-05 onwards, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia
and also, for tax years from 2006-07 onwards, Bulgaria and Romania.

Otherwise the answer is no. Tax relief will granted under the jurisdication of the country she is resident in.