Equity release from rental to pay residential mortgage??

astar24

Is this possible?

Obviously we are taxed on the rental, turns over £16,000 per yr gross and we have an £140,000 interest only mortgage at 3.84%. We have an outstanding mortgage of £123,000 on our residential at 3.99% as now on variable. . We are now at the end of both mortgage deals and are at a crossroads as to what to do.

We are wondering if you can release equity from rental to pay residential.

Thank you

Foxy-Stoat_3

Depends on the lender, normally BTL mortgages need a maximum of 75% LTV. How much is the rental worth?

astar24

Rental worth 220k. We can afford our residential as currently using the rental profit to overpay bur just wondered if if made sense for tax purposes to release some equity so rental mortgage would be higher i.e. What we are taxed on.

nom_de_plume

Not a tax expert but I would have thought that if, for example,you used say £20,000 of your own cash as deposit, it would not be unreasonable to re-mortgage to release that back to you and offset the increased interest payments against your taxable income from the property.

dimbo61

really you need to speak to your accountant if you have one!
You can offset the interest you pay on your rental property from when you first let it out!
So if you bought for for say £220K with a £180K mortgage you can offset the £180K interest only cost.
If you can take extra out of the BTL property and pay down some of the residential property debt

kingstreet

You're only going to be able to raise £25k over the existing mortgage by remortgaging. Is it worth it?

Your residential mortgage isn't interest only too is it?

Thrugelmir

What's your effective rate of income tax on the letting profit?

astar24

Thanks

Still 20% income tax on the letting profit and no our residential is repayment. Thanks for all the responses. If we stuck where we are which i suspect we will, would it be worth making the rental a repayment or pay off the residential then work on the rental mortgage?

astar24

Thanks

Still 20% income tax on the letting profit and no our residential is repayment. Thanks for all the responses. If we stuck where we are which i suspect we will, would it be worth making the rental a repayment or pay off the residential then work on the rental mortgage?

holly_hobby

You can only offset the interest element of your BTL mortgage (restricted to a mortgage ceiling equal to the pch price or value of the property, when it became available for let).

Which means that if you switch your BTL on to full repayment (C&I), that whilst effectively reducing your net yield (as the monthly mge repayment reqd will increase to now include the capital element, which is not tax decutable so will have to be absorbed), this arrangement will also over time, reduce your deductable mge interest, which will gradually be eroded in line with the continually reducing capital debt - but the trade off is the business isn't as heavily in debt, which may also help to offset the effect of falling market values -v- negative equity, free up equity for later withdrawal, etc.

Of course, if you have no repayment vehicle/exit plan for your BTL property, and wish to retain the dwelling post end of any available mge term, then switching to C&I may make perfect sense from that planning perspective.

Personally (if the BTL beneficial owners are all tax payers ie no one under personal allowances etc), I would firstly reduce my residential mge (which carries no tax breaks), before you start hammering away at your BTL debt (which will always have associated finance (mge) interest as a permitted deduction of the business, at its highest chargeble rate).

Please discuss this and other tax planning exercises with your own tax practioner.

Hope this helps

Hollyx

astar24

Thank you Holly this really helps! This forum is so useful.