How to reduce BTL tax if job income is high

Skag

Yes, CGT is one thing for sure.
The BTL properties are owned outright.

anselld

Skag wrote: »

My income is 60k/year, and I have another 30k incrom from BTL property, for which I am paying 40% tax.

Is there any way to reduce the tax on the property income?

Marry someone with expensive tastes and no inclination to work.

Bluebirdman_of_Alcathays

anselld wrote: »

Marry someone with expensive tastes and no inclination to work.

I'm available.

chucknorris

Skag wrote: »

Yes, CGT is one thing for sure.
The BTL properties are owned outright.

Is your home mortgaged, if so, could you flip, and move into one of your investment properties, and let your home (offsetting the mortgage interest). This would also help with CGT when you come to sell your investment property, as long as you manage the preiod that you rent out your existing home to avoid incurring CGT on that property.

kidmugsy

chucknorris wrote: »

Is your home mortgaged, if so, could you flip, and move into one of your investment properties, and let your home (offsetting the mortgage interest). .

But the Chancellor is stopping the offsetting.

kidmugsy

chucknorris wrote: »

No he isn't, he is capping it at 20%.

In which case it's not "offsetting" is it? It's just a tax relief at 20%.

kidmugsy

chucknorris wrote: »

The OP is looking at ways to reduce his tax, and this is a possible way of doing so. Who the bloody hell cares what you call it, the point is to reduce tax!.

Look, off-setting has a clear agreed meaning in English; you can't just misuse it and then accuse me of being pedantic. Otherwise you might as well call it porridge.

chucknorris

kidmugsy wrote: »

Look, off-setting has a clear agreed meaning in English; you can't just misuse it and then accuse me of being pedantic. Otherwise you might as well call it porridge.

The OP is looking at ways to reduce his tax, and this is a possible way of doing so. You might argue that partially offsetting mortgage interest, isn't offsetting but who the bloody hell cares what you call it, the point is to reduce tax!

Also it isn't just tax relief at 20%, because it is being phased in over 4 years, so the amount of mortgage interest that can be offset will not be reduced to 20% until the 2019 to 2020 tax year.

In addition to reducing his income tax, he would also eventually (when selling) reduce his capital gains tax bill. I have lived in 3 of our 8 investment properties, and currently (if I sold now) it reduces my taxable gain by £350k, from what it otherwise would have been. At 28% this equates to £98k, but I have lived in my properties for about 11 years, which isn't an insignificant time.

We are currently considering the possibility of moving into more of our properties. It might suit us to spend some time living in London, where our investment properties are, after we retire (probably next year).

chucknorris

kidmugsy wrote: »

Look, off-setting has a clear agreed meaning in English; you can't just misuse it and then accuse me of being pedantic. Otherwise you might as well call it porridge.

Our posts crossed, I was actually editing my post to omit the word pedantic (see my edited post above), to soften the tone, but who cares, the OP is trying to reduce his tax bill.

If I wanted to be petty I could say that '20%' also has a clear meaning, and the tax relief would not be reduced to 20% until the tax year ending in 2020, so until then, it isn't 'just tax relief at 20%' as you stated. But I would consider that remark to be pointless and petty, and just tit for tat. So I'm just showing how daft it is to have pointless arguments on an internet forum, who gains anything by it? Isn't the whole point to solve the problem about reducing the OP's tax, rather than have petty arguments?

chucknorris

Skag wrote: »

So if I don't want to put everything in my pension? What do people with higher income do? Take a 40-45% hit?

I'm 58 years old (although my wife is only 47) and as we don't have children to leave the properties to, I need to start thinking about my exit strategy, and the tax changes have definitely focused my mind on that.

Because we have low margin tracker mortgages (although we do own 4 properties outright), the effect of the changes is minimal at the moment. But when the base rate reaches about 2.25%, and presumably by then the tax changes will be fully implemented, my net (of tax) dividend income will be almost equal the rental income (net of tax), but obviously with far less hassle. So I can see myself selling a few properties in 2 to 4 years and investing the equity in shares.

Maybe the answer is to consider selling some property and adding some share funds to your portfolio and also creating some portfolio diversity, I've been doing that since 2008. Even better if you do it (partially or completely) within pension and ISA wrappers.

I am also taking early retirement either this or next summer, otherwise I will be paying more than 40% tax.

We are also taking a look at the Isle of Man this summer, as a possible retirement place. Our decision will not be based upon the lower taxes there (that would merely be a significant bonus), it would have to appeal to us as a nice place to live. But my hobbies seem to fit in quite well there, i.e. hiking, jogging, cycling, taking my dog out and bowls.