Pay off BTL

berbatov10

I have 2 BTL properties which I am in a position to pay off. I earn just over high tax bracket so cannot put the sum of money I intend to use to pay off BTL into a pension.


With tax changes can anyone tell me why this is not a good idea?


I don't know it all hence I am asking the question


Thanks in advance

00ec25

no where near enough information to enable anyone to say if paying off the properties (I assume you mean clear an outstanding mortgage on each of them) is the right thing to do

I accept that the sort of sum of money presumably involved in paying off 2 mortgages would probably be tens of thousands of £ so you may well hit the annual pension contribution limit but "earning just over the high tax bracket" is a meaningless statement as an explanation of why you cannot pay into a pension. The limit is £40,000 plus any unused allowance carried forward from the previous 3 years. How close to that are you?

if you pay off the mortgage you simple maths will tell you if you will be financially better off having done so...

1. total net cost of existing mortgages (capital and interest paid to the lender less tax relief on the interest payment)

compared to

2. increased income from not having to pay the mortgage less increased income tax on the higher profit less income lost from having converted cash investment into capital repaid on the mortgage

Spidernick

I think OP is possibly referring to the changes in treatment of interest on the letting mortgages, as the higher-rate relief is being phased out, so he'll effectively be getting only 20% relief on the interest, rather than 40%, even as a 40% taxpayer.

Putting enough into a pension so that earnings, plus savings, plus rental profits ignoring interest on the BTL mortgages, less pension and any Gift Aid doesn't take OP into 40% bracket, would probably be a better idea from a purely tax perspective (as long as both the pension and interest can be funded from available funds). However, if the two properties are giving OP a lot of rent, so that the profit before interest payments is over £40K, then the annual allowance (ignoring any brought forward relief) will mean that this is not possible.

As #2 says, more data is needed, but the changes do give many landlords food for thought.