Tax credits and offset mortgage

DownSouth

Hi,

Not sure if this should be in the mortgages forum (let me know).

I have an offset mortgage with £50k in the offset part and £80k in the mortgage part. I live in the house with my daughter (16) and I have a few low paying jobs and receive working tax and child tax credits.

I've found a cheap house in Portugal I can do up and either rent, sell or emigrate to. It's a way to use my building skills to make some income.

Questions:
if I take the £50k out of the offset to buy and repair the Portuguese house will I:
a) lose the tax credits part of my income?
b) have any other financial effects till I start to rent out or sell the Portuguese property?
c) anyone done anything similar and your experiences?
d) is there a better way?

The £50k will need to come out via my current account prior to buying the overseas house.

I realise I will be paying interest on the full £80k rather than the £30k offset difference.

zagfles

It won't have any effect until you start getting an income from the house. Tax credits are only interested in income, you can do what you like with any capital you have. But if the capital starts generating income you'd have to declare that and it would reduce your tax credits, but if the income minus expenses isn't much it probably won't have a big effect.

DownSouth

Hoped that was the case. It wouldn't make any sense as it's money previously earned and paid tax on.

I was just concerned that getting it out of the offset account into my current account would look like some sort of capital gain and hit the tax credit.

I'll double check with the revenue before doing it but it's always worth knowing the answer before you ask the question.

grummps

DownSouth wrote: »

Hoped that was the case. It wouldn't make any sense as it's money previously earned and paid tax on.

I was just concerned that getting it out of the offset account into my current account would look like some sort of capital gain and hit the tax credit.

I'll double check with the revenue before doing it but it's always worth knowing the answer before you ask the question.

I would be very wary at the moment of doing anything like this with Universal Credits looming. Tax Credits will move into and become part of Universal Credits and whereas WTC at the moment is not interested in assets, only the income they generate, Universal Credits is going to be a means tested benefit.

If it follows similar lines to other current means tested benefits, property that you have that you don't live in will be classed as capital and could well remove entitlement.

Make sure you do your homework properly. At the moment the capital in the offset is very likely not going to be treated as available capital, move it out of that 'protection' and you could find yourself in difficuty.

zagfles

grummps wrote: »

I would be very wary at the moment of doing anything like this with Universal Credits looming. Tax Credits will move into and become part of Universal Credits and whereas WTC at the moment is not interested in assets, only the income they generate, Universal Credits is going to be a means tested benefit.

If it follows similar lines to other current means tested benefits, property that you have that you don't live in will be classed as capital and could well remove entitlement.

Make sure you do your homework properly. At the moment the capital in the offset is very likely not going to be treated as available capital, move it out of that 'protection' and you could find yourself in difficuty.

Yes, though there are transitional rules which will preserve existing entitlement, and that includes those with capital. Unclear exactly for how long though.

DownSouth

Good point about the new credits coming in.

It's getting impossible to plan anything when the rules keep changing.

I'm trying to do my homework on this but it's difficult to get definitve answers. You end up doing nothing or potentially losing the roof over your head due to some re/misinterpretation of rules by the revenue.

Any further info. or experiences from others would help.