Remortgage current home on a buy-to-let, buying new property to live in ...

PixieP

I am self employed and currently on maternity leave. My husband and I realised that due to my self employed status, when it comes to moving (which we had planned to do in the next 12 months or so), we won't get as good a mortgage since my 2015-16 accounts are going to be dire, compared to the previous three years. So we have until March to move if we want to use the last three years of accounts which currently won't include the 2015-16 ones (if that makes sense).

We have about £40k in savings, and about £120k equity in our current house. So we were thinking of remortgaging our current property on a buy to let mortgage and renting it out (as it'll rent well due to its size and location), then buying a slightly larger house nearby to live in - using our savings and some of the equity in our current house as a deposit on the new place.

We've been told by Barclays (our current mortgage provider) that this is all do-able, based on our joint earnings and current position. But my question is about the type of mortgage we should get to minimise the tax implications.

Someone said we should aim to get an interest only buy to let mortgage, as this way we can pay the interest off, whilst investing the remainder we get from the rental income... then in 20 years time or so we take that lump sum and pay off the mortgage completely. Which reduces the amount of tax we'll have to pay.

I'm completely confused about how this works, or if it does work at all!

Does anyone have any advice? I've spoken to my accountant and he worked out that we'd only be paying about £1500 tax on the rental income per year anyway, so I'm not sure it would be worth it. Although £1500 x 25yrs is worth saving if possible.

Any advice? Tia.

brit1234

You also have to consider the new landlord tax coming in 2017. Your tax bill may be a lot higher.

Check out this landlord forum link to see their anger and the risk to them:
http://www.property118.com/budget-2015-landlords-reactions/76164/

anselld

Generally interest only works best for BTL as the capital remains invested in the (rental) business. The residential element will need to be repayment.

caronoel

£1,500 a year isnt much of a tax charge.

You may want to consider putting the after tax profit into an ISA or other investment vehicle, as paying off your mortgage early will reduce the interest you can claim against tax.

That way in 20 years time, you should hopefully, be sitting on a nice little tax free capital gain from your ISA pot which could pay off your mortgage.

As for brit's words of counsel, he can easily be ignored. He is regularly ridiculed on the Debate House prices board for his nonsense advice:
https://forums.moneysavingexpert.com/discussion/5303850