Best Option?

fcmisc

Hello,

I own a flat worth about £XXXk with no mortgage.

I have about £AAAk of cash.

I would like to buy another place (to live in) for about £XXXk. And let out my current flat.

I do not want to sell my current flat, I want to keep it and let it out.

What is my best option?

Should I buy the new place with a £XXXk mortgage? Or should I remortgage my current place and buy the new place with cash? What will the tax implications be if I receive income from one property but use that to pay the mortgage of another?

Werdnal

Any income must be declared - what you actually spend it on is immaterial to HMRC. However, if you have a mortgage on the property you let out, you can offset any tax due against the interest on that mortgage. Many people suggest the BTL mortgage on the property you rent out is the easiest option, but you could remortgage your existing property and used the funds to purchase the BTL - but you must have a clear papertrail to prove what the funds you have raised are for, and link them to the BTL property to be able to use that interest as an allowable expense.

Either way, there is much more to learn and abide by if you are becoming a LL. Is your flat leasehold - does your lease permit letting?

You should read this:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

as a good starting point for your LL research and ensure you know what you are getting into, as there are fines and penalties for getting even the basics wrong!

Fire_Fox

If you mortgage your existing flat that makes you a cash buyer on any new place, which means you are in a better position to buy at auction or repossessions. Tax has been covered many times, please run an advanced search.

Does the maths actually work - can you cover the mortgage, service charges, ground rent, major works, insurances, vacancies, income and capital gains tax, letting agents fees and still turn a healthy profit? Do you have plan in case of illness or injury, redundancy, tenants that don't pay rent or trash your flat?

nobblyned

You have to work out whether the rate you pay on the btl mortgage is higher than that you would get on the residential mortgage including the tax deduction at your marginal rate. Taking into account the fact that certain LTV ratios are trigger levels for higher rates.

Additionally you can probably maintain the btl on an interest only basis, whereas the residential will likely need to be on repayment. So depends on your future plans for your capital.

So essentially, no-one can decide but you, based on your circumstances, future plans, and your view on where the world and interest rates are going.