Clear my mortgae or pay into a pension

Baldyman1

Guys I have some extra money to play with in the new year and I have booked to see a financial advisor but need a heads up for some ideas before please.

I have 2 properties as follows.

1. A BTL that has NO mortgage on it at all - currently brings me in around £450 gross profit a month.

2. A residential mortgage on my house that is £113,000 over 18 years that cost me £650 a month( capital / interest ) - I get tax relief on this due to clearing the BTL .

Now I have around £300 a months extra to play with in the new year and would like to know what's better to do , clear my existing mortgage as quick as I can or pay some money into a pension fund - I am a higher rate tax payer on my salary but the BTL costs me each month,.

My current job will last for another 5 years then I will need to have a change of direction to a much lower salary .

Ideas please ?

ACG

How old are you?
When your wage drops will you still be able to support your mortgage as it stands?

Thrugelmir

Baldyman1 wrote: »

I am a higher rate tax payer on my salary but the BTL costs me each month,.

How much are subsidising the BTL by? Is the BTL making a taxable loss or just in cash flow terms.

Doesn't sound particularly tax efficient.

Baldyman1

Thrugelmir wrote: »

How much are subsidising the BTL by? Is the BTL making a taxable loss or just in cash flow terms.

Doesn't sound particularly tax efficient.

I am 45 ,

We raised capital on my residential mortgage to clear off the debt on the BTL - I am subsidising it by £210 a month although the loss on it was carried over from the previous mortgage.

TrickyDicky101

What's the rate of interest on the mortgage and what was the value of the BTL property when you first started letting it. This last point is important as your maximum tax relief on the interest will be determined by this value.

Baldyman1

TrickyDicky101 wrote: »

What's the rate of interest on the mortgage and what was the value of the BTL property when you first started letting it. This last point is important as your maximum tax relief on the interest will be determined by this value.

Fixed at 2.22 %

Value was £135,000 when I purchased it new in 2007

amnblog

BM

This is not the place to be getting advice on matters relating to pension planning, income tax, and CGT.


Wait until the financial adviser understands your situation and rely on them to advise you correctly.


Any suggestions you get here are pure speculation as we don't know your full situation.

TrickyDicky101

Baldyman1 wrote: »

Fixed at 2.22 %

Value was £135,000 when I purchased it new in 2007

OK the full interest charged on the mortgage should be offsetable against the rental income.

You know you can't offset the entire mortgage payment against the rental income, only the interest element?

That leaves you under your fix, and in the absence of other information on expenses you incur in running the BTL, with a taxable profit on c. £240 per month at your highest marginal rate.

Turbo_Ace

Can someone please explain how the OP is able to claim tax relief on their residential mortgage?

I know that BIM45700 allows you to take money from the BTL to reduce your own mortgage but where can I find information on residential mortgage tax relief?

Thanks

TrickyDicky101

His residential mortgage was expressly taken out to fund the BTL - hence the mortgage interest he pays on this lending is fully allowable against the BLT income (given the mortgage amount does not exceed the value of the BTL when first brought into use as a business rental).

JimmyTheWig

I agree with this...

amnblog wrote: »

This is not the place to be getting advice on matters relating to pension planning, income tax, and CGT.


Wait until the financial adviser understands your situation and rely on them to advise you correctly.


Any suggestions you get here are pure speculation as we don't know your full situation.

But no reason not to get

Baldyman1 wrote: »

a heads up for some ideas before please.

Tax relieft of 40% on interest @ 2.2% means the mortgage is costing you 1.32%. You should easily be able to beat this return elsewhere.
My gut reaction is that while you are a higher rate tax payer you'd be crazy to pay down the mortgage.

Paying money into a pension is always great as a 40% taxpayer because it reduces your tax bill.
But obviously only do this if you don't need the money before you retire.

You talk of having a drop of income in 5 years time. This, to me, is what you need to be planning for.

My starting point (without knowing anything like enough about your circumstances) would be to pay enough into your pension each year to cover your 40% income tax and keep the rest to one side earning what you can until your income drops at which point paying off the mortgage might be the best plan.