Advise on best use of inheritance?

scotsmum_2

Ive been following this subject for a while and have been amazed at hw paying a bit extra each month could dramatically reduce my years left paying. Anyway I have recently got some inheritance and am unsure what to do with it, the 2 options I have considered are either use it all to pay off half of my outstanding mortgage or buy outright a 1-2 bedroom flat (Ive looked into prices and is do able) and let it out and use the income to pay double per month towards my mortgage to greatly reduce the term.

The way Im thinking is if I put the money into current house then I will be clear in a few years, however if I do the BTL then I can still be clear of current mortgage in a few years but will also have the flat and any future income from it as well.

What does everyone else think? Are there any ideas I have not yet considered?

firesidemaid

you will have to pay tax on the rental income and eventually capital gains tax when you sell the house, so factor this in

Welshlassie

Normally having a BTL property you have a BTL mortgage on it with the rent covering your mortgage plus a little bit. Hopefully only enough to pay for insurance, gas safety certificate and maintenance throughout the year. This would then prevent you/reduce the amount of tax you pay each year, as the rent would be offset by the mortgage (interest element of). If you have bought the property outright then your tax implications would be that much greater as the rent would be unearned income, you would need to find out approximately how much tax you would be paying each year and decide if this is worth it (you will be better off, just need to decide if renting it out is worth the grief, its not as easy as some TV shows make out, I've been doing it for 18 months and have had horrendous problems with the rental agency).

Good luck.

Kaz2904

If you are in the position of being able to buy a btl outright then I would pay the money off your current property (provided there are no penalties), keeping enough for a deposit for a btl. Then get a btl and overpay your own mortgage with any spare money therefore minimising your tax liabilities and maximising your possible gains.

If the market should collapse you could be in difficulty but if it continues to rise or just stays as is you could stand to gain well.

scotsmum_2

Thanks for the comments. Will need to look into it all a bit more as hadn't really lloked into the tax side of things.