Advice on paying off buy to lets

holly_hobby

Hi Angels ..

Pleased to see that you were able to sort out the issues we discussed a little while ago x

Ok, I think this has already been covered (certainly Thurls. touched on a salient point), of making your overpayments off your residential mortgage.

As although your BTL mortgages will have a higher payrate, the entire interest element is a permitted HMRC tax deduction off the rental income (unlike that on your residential mge, which I guess has NO connection to the BTLs or their funding i.e you didn't release capital to source their reqd deposists, so is not eligible to be offset).

Following that, and if you wish to retain your BTLs, you can then start to reduce your BTL balances as you wish (subject to the max annual overpayments). If however, you feel that you will sell them, then obviously the point to be made is that the lower the mortgage the less interest that can be offset - but this is all relative, as the lower the os debt, the more free rental income there is, and free equity on its disposal.

You need to be aware though that the disposal of your BTLs (if not your primary residence at the time of sale), will attract a CGT calculation, to which the only forward planning you can give for this, is to acutally reside in it as your main residence, for a period coming up to sale. There is NO other way to avoid CGT exposure, other than by this method. (notwithstanding qualifying permitted reliefs/allowances)

If you choose not to do this, then any gain will be subject to a full CGT calc (net of permitted allowances and reliefs).

If you are going to sell, and I'm talking tax wise, the best property to initially dispose of would be your first property (with 8 yrs currently remaining).

Which although will be exposed to CGT on any gain, (after your 3 yr vacation period has elapsed), it will attract quite a few reliefs, such as PRR relief, Plus Lettings Relief, Plus your unused annual CGT allowance - so there would have to be a pretty decent gain on this one (circa 50K+ based on current reliefs), for you to suffer any CGT liability at all.

Your 2nd BTL is a slightly different story - as a property purchased as a BTL and utilised as such since its purchase, any gain would be entirely exposed to CGT, with the only mitigation being the application of any unused CGT annual allowance.

To mitigate this, a suggestion would be apx 6 mths or so before you plan to market/sell. to move into it as your primary residence and nominate it with HMRC as your main res if you want to top and tail it, although this is not essential, as HMRC will no doubt require evidence of your occupation in any event (being that you hold additional property), such as utility and service bills, in your name at the property in question.

That way as it would be proven as your primary residence at disposal, you would receive full PRR relief - ant there would be NO exposure to CGT, . (after which you move back to you current home, and proceed to utilise that once again as your primary residence).

The above guidance is fully within HMRC regs, so don't fret that you will be cited as operating a tax evasion exercise, its not tax evasion its tax avoidance - and thereby is perfectly lawful ....(if not a little cheeky !) ... otherwise I wouldn't dream of discussing it here.

Of course any tax advice/guidance given on a free forum, should always be verified with your accountant/tax practitioner/HMRC.

By the way - with regards to your family issues, make sure that provision for your son/your estate - is suitably protected by trust and LPA arrangements - speak to your Solicitor about suitable formats given your situation.

Hope this helps

Holly x

noddynoo

I think you need to think about converting to repayment otherwise as the economy gets worse and rates rise and house prices fall you wll be in trouble. I would sell up IO means you can't really afford them. Where are the repayment vehicles? You are effectively renting and taking on all the maintenance and repairs etc that the landlord usually deals with. Greedy and stupid I'm afraid.

Wh05apk

Sterling_Mortgages wrote: »

Have you got a broker?

He/she should be able to sort this out fairly easily.

What are the valuations on all three properties?

- House 1

- House 2

- House 3

What I would generally suggest is re-financing the BTLs to the maximum amount available and using the funds to pay off the mortgage on your home. You can use the funds from the rent-a-room scheme towards the monthly outgoings.

Its difficult to give you a firm solution without all the facts though.

Post the values of the three properties and I'll have a go at it for you..

Why move from a lower rate resi mortgage onto more expensive buy to let mortgages?

angelsmomma

noddynoo wrote: »

I think you need to think about converting to repayment otherwise as the economy gets worse and rates rise and house prices fall you wll be in trouble. I would sell up IO means you can't really afford them. Where are the repayment vehicles? You are effectively renting and taking on all the maintenance and repairs etc that the landlord usually deals with. Greedy and stupid I'm afraid.

Did you not read my posts? The buy to lets are interest only for tax purposes and the residential is going to be overpaid by £12000 a year for 3 years which will then be mortgage free.

How does that make me greedy and stupid?

angelsmomma

Sterling_Mortgages wrote: »

Have you got a broker?

He/she should be able to sort this out fairly easily.

What are the valuations on all three properties?

- House 1

- House 2

- House 3

What I would generally suggest is re-financing the BTLs to the maximum amount available and using the funds to pay off the mortgage on your home. You can use the funds from the rent-a-room scheme towards the monthly outgoings.

Its difficult to give you a firm solution without all the facts though.

Post the values of the three properties and I'll have a go at it for you..

Thanks

House 1 £85000 mortgage owed £35000 (residential but let with consent)

House 2 £80000 mortgage owed £49000 tenanted buy to let

House 3 £95000 mortgage owed £65000 I now live here and have a lodger.

I am still in the fixed periods for all 3 so remortgages just now not a good idea

edit. I did have a broker but she was against me moving into the buy to let and said she couldn't get me another mortgage.


All 3 mortgage payments are £473 in total

angelsmomma

holly_hobby wrote: »

Hi Angels ..

Pleased to see that you were able to sort out the issues we discussed a little while ago x

Ok, I think this has already been covered (certainly Thurls. touched on a salient point), of making your overpayments off your residential mortgage.

As although your BTL mortgages will have a higher payrate, the entire interest element is a permitted HMRC tax deduction off the rental income (unlike that on your residential mge, which I guess has NO connection to the BTLs or their funding i.e you didn't release capital to source their reqd deposists, so is not eligible to be offset).

Following that, and if you wish to retain your BTLs, you can then start to reduce your BTL balances as you wish (subject to the max annual overpayments). If however, you feel that you will sell them, then obviously the point to be made is that the lower the mortgage the less interest that can be offset - but this is all relative, as the lower the os debt, the more free rental income there is, and free equity on its disposal.

You need to be aware though that the disposal of your BTLs (if not your primary residence at the time of sale), will attract a CGT calculation, to which the only forward planning you can give for this, is to acutally reside in it as your main residence, for a period coming up to sale. There is NO other way to avoid CGT exposure, other than by this method. (notwithstanding qualifying permitted reliefs/allowances)

If you choose not to do this, then any gain will be subject to a full CGT calc (net of permitted allowances and reliefs).

If you are going to sell, and I'm talking tax wise, the best property to initially dispose of would be your first property (with 8 yrs currently remaining).

Which although will be exposed to CGT on any gain, (after your 3 yr vacation period has elapsed), it will attract quite a few reliefs, such as PPR relief, Plus Lettings Relief, Plus your unused annual CGT allowance - so there would have to be a pretty decent gain on this one (circa 50K+ based on current reliefs), for you to suffer any CGT liability at all.

Your 2nd BTL is a slightly different story - as a property purchased as a BTL and utilised as such since its purchase, any gain would be entirely exposed to CGT, with the only mitigation being the application of any unused CGT annual allowance.

To mitigate this, a suggestion would be apx 6 mths or so before you plan to market/sell. to move into it as your primary residence and nominate it with HMRC as your main res if you want to top and tail it, although this is not essential, as HMRC will no doubt require evidence of your occupation in any event (being that you hold additional property), such as utility and service bills, in your name at the property in question.

That way as it would be proven as your primary residence at disposal, you would receive full PPR relief - ant there would be NO exposure to CGT, . (after which you move back to you current home, and proceed to utilise that once again as your primary residence).

The above guidance is fully within HMRC regs, so don't fret that you will be cited as operating a tax evasion exercise, its not tax evasion its tax avoidance - and thereby is perfectly lawful ....(if not a little cheeky !) ... otherwise I wouldn't dream of discussing it here.

Of course any tax advice/guidance given on a free forum, should always be verified with your accountant/tax practitioner/HMRC.

By the way - with regards to your family issues, make sure that provision for your son/your estate - is suitably protected by trust and LPA arrangements - speak to your Solicitor about suitable formats given your situation.

Hope this helps

Holly x

Thank you Holly, as usual lots of useful information.

I did mortgage the mortgage free first property to put the 25%deposits down on the buy to lets.

I am just in the process of sorting out the solicitor about a will, I don't know if he is an expert on trusts though.

I need to do some more research on trusts as I am a single mum and my sons father is awful with money so want to tie it all up securely for my son.

angelsmomma

Thanks everyone, just another point is that I have no plans to sell any of the properties at the moment as I am 55 and still have 11 years until I retire.

angelsmomma

Wh05apk wrote: »

Why move from a lower rate resi mortgage onto more expensive buy to let mortgages?

Buy to let mortgages have interest rates of 5.49 as the consent to let added a 1% load on the interest rate the Residential one is now 5.89% so not much in it really.

I was self employed when I took out the residential mortgage so couldn't get the reall good rates despite a really good credit file.

cte1111

Holly's not completely correct about the tax treatment of the house in which you live. If it has always been your primary residence, then it is exempt from CGT. However if it has at some point not been your primary residence, then it is liable for CGT.

You would be able to claim exemptions (PPR for the period you lived in it plus possibly the last 36 months, letting relief if it has been let out), which might well mean that in the end there is no CGT bill but it would be misleading to state that just because you live in it when it is sold, there is no CGT exposure.

holly_hobby

Concur and duly acknowledged ... albeit the end result will probably be the same liability wise.

To confirm, it is possible to cut capital gains bills by living in the second BTL property as a primary residence for a period of time, obv moving into into a second home will mean that OPs current main res would be exposed to CGT (which would not start ticking in any event until 3 yrs from vacation - whereby she would be back in there anyway).

Moving into the currently let property, and selling as primary residence within 3 yrs, would under the circs attract a CGT exlcusion of the last 36 months of ownership (thats confirmed), plus lettings relief (40K) and obv any unused CGT allowance.

Any term os of 3 yrs, would mean (in additon to the last 3 yrs exemption) that the further mitigation of relief would be the lower of lettings relief, the amount of additional PPR relief claimed, or the capital gains made during the letting period, in addition to any unused annual CGT relief of course.

Which as stated, will probably result in zero liability - but I thank you for correcting my original post (NB - the info I noted was following advice given by a Chartered Accountant to a Client - with apologies for any un-intened mis-representation, which I have now verified).

Holly