Do i transfer my residential to my btl?

mrspilchard

I am having difficulty understanding the following so if anyone can help me i would appreciate it greatly! I have a Buy To Let property with a BTL mortgage. I also have a smallish mortgage of £45k. I have been told to pay this off and transfer it to my BTL property for tax effeciancy but I can't see how this will work when the BTL mortgage is 5.29% and the my residential mortgage is 3%. I know it is basic maths but i just have a mental bloke over this? Anyone can help?

agrinnall

It really depends on the figures, we'd need to know how much the interest on the BTL would be and what your rental income is, along with any other allowable expenses that you are claiming. Basically, all of the interest on the BTL mortgage can be used to offset your rental income, so your tax bill may be lower, but without lots of data we can't say which option would be better for you.

antrobus

agrinnall wrote: »

It really depends on the figures, ...

And it would depend on what OP had paid for the BTL property, and what was already o/s on the BTL mortgage.

real1314

afaik....


example:-

BTL property bought at £100k with £80k BTL mortgage
Home owned worth £200k with £75k residential mortgage

LL can claim tax releif against all of the interest on the BTL mortgage + £20k worth of interest on the residential.

However, what some have tried to do is claim based on the BTL now being worth £125k and therefore attempt to claim tax relief on £45k of the residential mortgage, which is not allowed.

:cool:

00ec25

agrinnall wrote: »

It really depends on the figures, we'd need to know how much the interest on the BTL would be and what your rental income is, along with any other allowable expenses that you are claiming. Basically, all of the interest on the BTL mortgage can be used to offset your rental income, so your tax bill may be lower, but without lots of data we can't say which option would be better for you.

I disagree, as the OP says this is just basic maths and reading the question fully the info required is provided

residential rate 3.0%, so every £10,000 of debt costs £300 pa in interest payments . He gets zero tax relief against his rental income so pays full tax on his rent which therefore costs him effectively an extra £60 in tax actually paid (20% basic rate) or £120 (40% higher rate) because the rental profits are £300 higher than they could be if he was able to offset the mortgage cost.
Therefore total net cost of keeping residential mortgage 300 + 60 = 360 (or 420 higher rate)

alternatively BTL rate 5.29% so pays £529 pa in interest but can claim this against his rental income therefore reducing his tax bill by 105.80 (20%) or 211.60 (40%).
total net cost of switching to BTL option therefore 529 - 105.80 = 423.20 (basic rate) or 317.40 (higher rate).

Conclusion, it is more expensive to switch to the BTL given the large interest rate margin on the BTL

kidmugsy

mrspilchard wrote: »

I have been told to pay this off and transfer it to my BTL property

By whom?

(The software finds this post too short. Was it written for our verbose American cousins?)

anselld

mrspilchard wrote: »

i just have a mental bloke over this? Anyone can help?

I think the "mental bloke" must be your financial advisor!

Even for a high rate taxpayer, 3% without tax relief is cheaper than 5.29% tax deductable.
.

AlexMac

I agree - The interest element on your £45k domestic mortgage is £1350 pa / £112.50 pm.

If the £45k was added to the BTL loan and before you claimed any tax relief on the interest, at 5.29% the interest element would be £2380.50 pa / £198.38pm so you’d be £1030.5 pa worse off.

Assuming you could get away with claiming Tax Relief on the BTL; relief at 20% tax rate would be £476, or at 40% it would be £952. So even if you added the mortgage into the BTL and claimed relief you’d still be worse off. And there might even be a fee for early redemption and/or arranging the new loan

Sack your advisor.