Releasing Equity in a BTL Property

Thriftygal70

Hi ... Can anyone advise whether it's ok for us to re-mortgage our BTL property which is currently 35% ltv .... & release some of the equity ... we are thinking of using it to pay off some of our existing residential mortgage ... are we able to do this without making any declaration to the tax man ? Would we need to include this amount somewhere on our self assessment forms ?


Many thanks in advance for any pointers .

AnotherJoe

The only declaration to the tax man would be what your mortage interest was in the next year.

It's no different to having a bigger mortage on the BTL in the first place.

Thriftygal70

Thanks ... so the fact we would be using the money for a personal gain (ie paying off some of our residential mortgage) ... do you think we wouldn't need to declare that to tax man ? Thx ... just wondered if it was a grey area ?

AnotherJoe

Imagine you started with a (say) 65% LTV. or a 75% one. Or a 10% one. It's up to you.

Or you sold this property and then bought another with a different LTV.

All that matters is what the income and costs are. The mortage interest is part of the costs & many LLs actually maximise their mortage interest to increase the costs to minimise tax. (Less effective going forward as the tax rules change)

AnotherJoe

Just happened across this

http://www.telegraph.co.uk/investing/buy-to-let/could-take-mortgage-home-keep-buy-to-let-portfolio-afloat/

Cornucopia

Thriftygal70 wrote: »

Thanks ... so the fact we would be using the money for a personal gain (ie paying off some of our residential mortgage) ... do you think we wouldn't need to declare that to tax man ? Thx ... just wondered if it was a grey area ?

As well as the change it'll probably make to your income tax bill, there will be capital gains tax to pay, but this only becomes due when the property is sold.

Thrugelmir

Why not sell the BTL and pay down your mortgage as far as you able (if not entirely). What do hope to achieve by shifting the debt owed around?

AnotherJoe

Thriftygal70 wrote: »

Thanks ... so the fact we would be using the money for a personal gain (ie paying off some of our residential mortgage) ... do you think we wouldn't need to declare that to tax man ? Thx ... just wondered if it was a grey area ?

Just to add, there is no personal gain, you are just shifting debt around. You owed, for sake of example, £100k ona BTL and £100k on your home (their values don't matter) , borrow £50k on the BTL to partially pay off the house mortage you'll end up with 150k on the BTL and £50k on your house. In each case you still owe £200k in total. Where do you think there is any gain ? You aren't magicing up money.

Edit just noticed thrugelmir made the same point.

kingstreet

How much you can raise on the BTL will be based on a combination of personal affordability and the lender's rental cover calculation.

The interest is a treated as a trading expense regardless of what it is secured on. This is an loan upto the value of the property at the point it was first let.

silvercar

kingstreet wrote: »

How much you can raise on the BTL will be based on a combination of personal affordability and the lender's rental cover calculation.

The interest is a treated as a trading expense regardless of what it is secured on. This is an loan upto the value of the property at the point it was first let.

Kingstreet makes valid points:

1. It is the value of the property when first let that is the limit for the size of the mortgage that the interest can be considered as an expense.

2. Where exactly the mortgage is secured is not relevant to the tax situation. So shifting it to the residential home does not alter the fact that it is an expense (allowable for tax purposes) of the BTL business.

But bare in mind that the rules on mortgage interest are changing in the next few years, so less of the mortgage interest will be considered an expense of the business. For this reason, now may be a good time to look at whether the BTL is viable.

The reason for moving the borrowing should be to lower the interest you are paying. Remember only interest counts as an expense, any capital repaid as part of your mortgage payments doesn't count as an expense. For this reason interest only mortgages are popular for BTL and harder to secure on residential mortgages.