Buy to Let re mortgage tax advice please

holiday-spain.biz

I have a BTL property and as the value of the house has risen, the mortgage has fallen, thus I have a bit of equity in the property. I'd like to release some of that equity by remortgaging and using the cash to pay off the mortgage that I have on the home that I live in.

I have been told (by somebody that probably does not know) that I have to pay tax on the cash I raise unless I can demonstrate that the cash was used to improve the house.

If this is true, do I declare the money received on my next tax form or how do I declare it.

Any advice would be great

WHA

No, you only have a tax liability if you sell or give away the property - not by remortgaging it.

holiday-spain.biz

So - Just to be clear and I dont fall foul of the tax man, I currently have a mortgage of £30k and declare the interest only payment on my tax form as expenses. I remortgage to £60k (thus raising £30k for myself) this will mean that I pay less tax next year as my expenses will be higher.

Is this ok?

Cheers

AlanCunningham_2

holiday-spain.biz wrote:

I have a BTL property and as the value of the house has risen, the mortgage has fallen, thus I have a bit of equity in the property. I'd like to release some of that equity by remortgaging and using the cash to pay off the mortgage that I have on the home that I live in.

I have been told (by somebody that probably does not know) that I have to pay tax on the cash I raise unless I can demonstrate that the cash was used to improve the house.

If this is true, do I declare the money received on my next tax form or how do I declare it.

Any advice would be great

I never declared any of my BTL profits. I ensured that the income from rent was less than the mortgage interest by continually remortgaging as required. I have only ever sold 2 properties but have never paid any tax on the profits made from capital gains. The Inland revenue never asked for any information about disposals so I suppose the profits I have made (just about six figures) were tax free anyway.

Alan

Cook_County

From what he says Alan is likely to be sent to jail for tax evasion, so I'd ignore his comment.

You would only be able to deduct £30k/£60k in your example because the loan needs to be for a qualifying purpose.

MarkyMarkD

You can't get tax relief on more borrowed money than the value of the property when you started your letting business.

So, if you start a BTL business with a property that you buy for £100k with a £85k mortgage, you can claim full interest relief on the £85k.

If the property value increases to £200k, you might remortgage it for £170k (sticking to 85% LTV). But you could only get tax relief on the £100k value of the property when the rental business began - not the extra £70k which you have effectively withdrawn from the rental business for other purposes.

Obviously if you remortgaged and used the "spare" £70k to buy another rental property, you could obtain tax relief on the whole £170k loan.

holiday-spain.biz

Thanks for that - it makse sense. How do I pay the tax on the extra 70k, is it just put into my tax form next Jan?

MarkyMarkD

You don't pay tax on it, as such. You just don't claim tax relief on the interest you would otherwise have offset against your rental income.

holiday-spain.biz

Ok I think I understand, so in the case of the £70k I would just use the same interest rate that I was paying but only deduct interest on £100k and not the £170k - am I making sense. I think I understand, maybe I'm getting too concerned abut this, there are thousands of people not paying any tax at all!!

MarkyMarkD

Yes, you understand. But no, I wouldn't rely on the anecdotal evidence of those not paying tax - tax evasion is a very bad idea.