Landlords - what type(s) of mortgages you have and why?

Thrugelmir

gagahouse wrote: »

Why do you ask? Is there a problem with repayment other than you pay tax on the capital element?

In the short period that BTL has been around. Capital gain has been the key. Unless the property has an extremely high yield the after tax income is unlikely to be sufficient to meet the cash required to fund capital repayments over the term of the mortgage.

Let_Us_See

gagahouse wrote: »

Ok, so 2000 pcm rent, 500 int, 500 capital repayment, assume 20% taxpayer

income = 2000- (500 int+ 100 maintenance+ 100 other expenses)= 1300

tax payable 20% of 1300 = 260

how are you not being taxed on the capital element?

It is worrying you cannot understand the difference between repaying capital within your monthly mortgage payment and paying tax on the PROFIT from the BTL. It is possible to make a profit on a BTL property, but still pay no personal income tax, if total personal income below minimum tax threshold. You are not being taxed on the re-paid capital within your monthly mortgage payment, but on your overall income.

mrginge

gagahouse wrote: »

Ok, so 2000 pcm rent, 500 int, 500 capital repayment, assume 20% taxpayer

income = 2000- (500 int+ 100 maintenance+ 100 other expenses)= 1300

tax payable 20% of 1300 = 260

how are you not being taxed on the capital element?

How does the above calculation differ on an IO mortgage?

Let_Us_See

mrginge wrote: »

How does the above calculation differ on an IO mortgage?

There is no difference. It is a simple concept they can't appear to grasp.

gagahouse

Let_Us_See wrote: »

It is worrying you cannot understand the difference between repaying capital within your monthly mortgage payment and paying tax on the PROFIT from the BTL. It is possible to make a profit on a BTL property, but still pay no personal income tax, if total personal income below minimum tax threshold. You are not being taxed on the re-paid capital within your monthly mortgage payment, but on your overall income.

It's more worrying that you don't appear to know how to read. Assume 20% taxpayer clearly indicates you have already used your full allowance, so capital repayment and btl profit are essentially the same as far as their tax treatment is concerned, in this example.

MisterMotivated

Capital repaid and BTL profit are not the same thing. Put simply, your rental income minus your deductible expenses (interest, maintenance, agency fees, etc) equals profit. You are taxed on that amount. Whether or not you repay any of the capital each month with your profit (or other funds) is completely irrelevant to that calculation.

amnblog

As you repay capital your interest drops and therefore the gap between your income and costs widens, increasing your tax bill.

This is not ideal.

If your objective is capital growth you will do better by holding two properties with 75% LTV mortgages than one with a 50% LTV mortgage.

uncreative

Which is why i do it through a limited company so that the income is taxed at 20% and not 40%/60%.

mrginge

gagahouse wrote: »

It's more worrying that you don't appear to know how to read. Assume 20% taxpayer clearly indicates you have already used your full allowance, so capital repayment and btl profit are essentially the same as far as their tax treatment is concerned, in this example.

What on earth are you talking about.

uncreative

Thrugelmir wrote: »

In the short period that BTL has been around. Capital gain has been the key. Unless the property has an extremely high yield the after tax income is unlikely to be sufficient to meet the cash required to fund capital repayments over the term of the mortgage.

So what if you have to make a personal contribution of £100 per month if there is a repayment shortfall, just think about what you arr getting.

If someone offered you a fully paid off property worth £90,000 giving you £500 per month in 15 years time and all it would cost you is £100 a month contribution, think about that versus £100 a month in an ISA which would be about £25,000 with good growth.