BTL - interest only or repayment

jamesd

No reason to get such a low savings rate, though. You can get an 8% regular saver from First Direct for £300 a month so why take just 1.5%? And why not use the best buy other savings accounts instead of 1.5%?

JimmyTheWig is right about the calculation for average balance. Works for loan interest, savings accounts and mortgage capital repayments, among other things.

holly_hobby

I haven't read through the debate entirely ... the grasp of which I think is offsetting mge borrowing against BTL rental income ... (apols if I have the completely wrong end of the stick).

You may raise money on a residential mge (release equity) - to either fund a BTL entirely or partly (i.e also effecting a seperate mge on the BTL property).

We know that the interest element of the BTL mge is an permitted deduction against rental income for inc tax purposes.

But so is the mge raised on the residential property, IF there is a clear audit trail between the release of the equity from the res property, and its direct investment into the BTL property. (of course in respect of all borrowed capital, it is only the INTEREST that is an allowable deduction against rental income tax for inc tax purposes.

Hope this helps
Holly

JohnDoe1

jamesd wrote: »

No reason to get such a low savings rate, though. You can get an 8% regular saver from First Direct for £300 a month so why take just 1.5%? And why not use the best buy other savings accounts instead of 1.5%?

JimmyTheWig is right about the calculation for average balance. Works for loan interest, savings accounts and mortgage capital repayments, among other things.

I was just 1.5% as an example. Just looked at First direct cos your post though and it seems a good deal. Pity I don't bank with them.

jamesd

No need to let that stop you. Just open a current account and they will pay you £100 for doing it after a little delay. Also set up a normal non-regular savings account to avoid the current account charge. Or set up a standing order to pay 200 in five times a month and £200 out five times a month to meet the funding requirement for the current account.

JimmyTheWig

jamesd wrote: »

I'm not more experienced than JimmyTheWig in this area - just maybe read more widely at times - he's usually the expert and raised a good point.

I'm flattered, but I wonder if you are thinking of someone else. I'm no expert at this. You could call me an expert at doing the calculations and working out what deal is best, but I'm certainly not an expert in knowing what is allowed and what isn't.

I think that JimmyTheWig is a bit wrong about the loan having to be used to purchase the BTL property. It's OK to take out a loan to extract money from the BTL business or avoid putting capital into it, provided the value is no more than the value of the property when it was put into the business. ... JimmyTheWig, do you agree?

I have no idea, I'm afraid. As I said above, I believe what I wrote was true. But it may well not be.

However, JimmyTheWig does raise an important issue: the purpose of the residential borrowing. JimmyTheWig has a good point about how HMRC might view it. On reflection I agree that it's unsafe to do the residential borrowing increase for a new property and BTL switch at the same time and HMRC might not allow the deduction.

This seems to fit with what I believe.

JimmyTheWig, how many seconds would you wait before refinancing the business borrowing to a cheaper form? Initial term of the BTL deal? A week? Do you agree that the restructured approach is safe?

I really have no idea. The "one day" mentioned earlier sounded very close to me. My gut instinct says 3 months, but that is really is a figure I have plucked out of thin air.
I suggest you speak to a tax accountant.