We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
Financial Help - Mortgage/Tax/Investment!?!
MickeyBlueEyes
Posts: 17 Forumite
Hi all,
I'm after some advice as my personal changes have just changed and I'm bit stuck as to what to do next...
Background
I'm 32 years old and purchased my family home (me and wife) in 2008 for £250k (property now worth £265k). We had help from both sets of parents and with hard work and overpayments the final payment was made in Dec 2013 and the property is mortgage free. Currently in my wife's name.
Also, I purchased a buy to let in Dec 2004 for £150k which is an interest only mortgage of £140k (property now worth £180k). I currently receive £800 in rent with a mortgage payment of £615 (4.95% variable interest rate on BTL mortgage - no ERC). This is used to offset the income for tax purposes. Currently in my name.
My circumstances have changed as my primary mortgage is paid off, I have recently had a new job with a pay rise of 40% and my wife has started working for the first time after the birth of our child. Also, my student loan is now paid off three months ago and we have no other credit card debt. I am higher rate tax payer and my wife basic rate.
As a result I have around an extra £24k a year to play with and would like some help as to what to do with it!
Questions...
My thinking was to switch the BTL mortgage to our residential property as with a much better LTV value we would secure a residential repayment mortgage at a low rate of around 3% over 25 years. The monthly payment would only increase slightly at this rate but would be paying off capital. The HMRC still allows the interest portion to be offset against the rental income as the debt is related to the BTL investment. Then I would use the £24k I currently have to overpay (£2k/month) and as a result would pay the mortgage in 6 years and save £60k in interest at the new lower rate.
My questions are:
Is it worth switching the mortgage from the BTL to my main residence?
As I will have to pay more tax as interest will be much lower is it worth overpaying to get rid of the debt? At the moment my tax bill is minimal due to the offset of interest payments. In this new scenario it will be around £3k!
Will I have to switch the BTL to my wife's name to get taxed at 20% instead of 40%? Is this easy to do?
Could do something better with the £24k every year? Should I consider another property(ies), shares etc...?
I don't really want the debt but I think I well end up paying lots in tax if I make the switch to a better mortgage and paying it quickly.
My originally thinking is based on that in 6 years I will have an asset worth £180k and receive around £10k in rental income a year and being taxed at 20% hopefully.
Or could I invest all the overpayments into another investment and still be taxed (obviously), but then I would still be paying a mortgage for years albeit in BTL.
A bit confused - could really do with a wizzy spreadsheet!
Any counsel will be much appreciated!!
(There is one other option but I'm not really for it as it is too risky and too much of a sacrifice imo). My parents give me their life savings of £140k and then I pay them all the rent/intended overpayments over the six years. But I would lose the tax deduction of the interest on a mortgage but on the other hand I would not have to be pay any interest on a mortgage. Let's just park this option!)
I'm after some advice as my personal changes have just changed and I'm bit stuck as to what to do next...
Background
I'm 32 years old and purchased my family home (me and wife) in 2008 for £250k (property now worth £265k). We had help from both sets of parents and with hard work and overpayments the final payment was made in Dec 2013 and the property is mortgage free. Currently in my wife's name.
Also, I purchased a buy to let in Dec 2004 for £150k which is an interest only mortgage of £140k (property now worth £180k). I currently receive £800 in rent with a mortgage payment of £615 (4.95% variable interest rate on BTL mortgage - no ERC). This is used to offset the income for tax purposes. Currently in my name.
My circumstances have changed as my primary mortgage is paid off, I have recently had a new job with a pay rise of 40% and my wife has started working for the first time after the birth of our child. Also, my student loan is now paid off three months ago and we have no other credit card debt. I am higher rate tax payer and my wife basic rate.
As a result I have around an extra £24k a year to play with and would like some help as to what to do with it!
Questions...
My thinking was to switch the BTL mortgage to our residential property as with a much better LTV value we would secure a residential repayment mortgage at a low rate of around 3% over 25 years. The monthly payment would only increase slightly at this rate but would be paying off capital. The HMRC still allows the interest portion to be offset against the rental income as the debt is related to the BTL investment. Then I would use the £24k I currently have to overpay (£2k/month) and as a result would pay the mortgage in 6 years and save £60k in interest at the new lower rate.
My questions are:
Is it worth switching the mortgage from the BTL to my main residence?
As I will have to pay more tax as interest will be much lower is it worth overpaying to get rid of the debt? At the moment my tax bill is minimal due to the offset of interest payments. In this new scenario it will be around £3k!
Will I have to switch the BTL to my wife's name to get taxed at 20% instead of 40%? Is this easy to do?
Could do something better with the £24k every year? Should I consider another property(ies), shares etc...?
I don't really want the debt but I think I well end up paying lots in tax if I make the switch to a better mortgage and paying it quickly.
My originally thinking is based on that in 6 years I will have an asset worth £180k and receive around £10k in rental income a year and being taxed at 20% hopefully.
Or could I invest all the overpayments into another investment and still be taxed (obviously), but then I would still be paying a mortgage for years albeit in BTL.
A bit confused - could really do with a wizzy spreadsheet!
Any counsel will be much appreciated!!
(There is one other option but I'm not really for it as it is too risky and too much of a sacrifice imo). My parents give me their life savings of £140k and then I pay them all the rent/intended overpayments over the six years. But I would lose the tax deduction of the interest on a mortgage but on the other hand I would not have to be pay any interest on a mortgage. Let's just park this option!)
0
Comments
-
Any thoughts anyone?0
-
Yes, many. However, I decided life was too short to fully respond. I gather I am not alone!0
This discussion has been closed.
Categories
- All Categories
- 346.2K Banking & Borrowing
- 251.2K Reduce Debt & Boost Income
- 451.1K Spending & Discounts
- 238.3K Work, Benefits & Business
- 613.4K Mortgages, Homes & Bills
- 174.5K Life & Family
- 251.5K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 15.1K Coronavirus Support Boards