Releasing Equity in BTL to reduce residential mortgage - Good idea?

moneysavers10

Hello all,

First time poster, thanks for everyone who posts such valuable advice.

I currently have 2 properties, 1 is a residential one which I share with my other half, the other is a property which we let out. I am looking to reduce the term/balance on my residential mortgage and wondered if one of the ways I could do this by remortgaging the BTL to free up some equity (which there is about 80k of, though i would not release all of this, more likely up to half). I understand that I get tax relief on the BTL so it is better to pay off the residential one rather than having a lot of equity in the BTL. Can anyone please advise if this is a good idea and also let me know any Capital gains (or other) issues that may arise if I do remortgage and decide to sell BTL in years to come?

thanks for your help

Kaz2904

As far as I know you only get tax relief on the interest portion of your BTL mortgage.
I don't think (but could be wrong) that it would affect the amount of capital gains tax you would pay in the end as it is on the profit you make between buying and selling (AFAIK).
Someone brainier may be able to help you later on.

boyse7en

You can claim the interest portion of mortgage payment on you BTL as an expense, and therefore it makes sense to increase the mortgage on your BTL and use the equity to pay off your residential property mortgage, unless the interest rate on your BTL is more than about 25% higher than your residential (i.e. 4% Resi and 6% BTL)

IveSeenTheLight

Kaz2904 wrote: »

As far as I know you only get tax relief on the interest portion of your BTL mortgage.
I don't think (but could be wrong) that it would affect the amount of capital gains tax you would pay in the end as it is on the profit you make between buying and selling (AFAIK).
Someone brainier may be able to help you later on.

Two thoughts I have on Captial Gains Tax: -

1) Am I right in thinking that if you move into the property, it then becomes your residual home and are not subjected to Capital Gains Tax?
2) If you increase your mortgage on your BTL, then when you sell, you have to clear your mortgage thereby having less profit from which CGT can be applied. Is this correct?

mel19632

Hi I've Seen the Light.

Capital gains works a little bit differently to this - if you live in the property (at any point) you get the time you lived in it + 3 years free but this is apportioned.

i.e if you have the house for 10 years and live in it for 1 the gain is apportioned to 60% (4/10 years are ok).

You also get letting relief up to £40k, or the gain on your property, or the amount of rent you received.

UNfortunately, the CG is not worked out on the mortgage which you have on the property, it is the cost you bought it from, plus any buying costs, and any improvements (capital) i.e if you built a conservatory, as opposed to you made some repairs to the electrics, so the problem with that is, if you have a very highly geared investment, when you come to sell you may not have enough profit in your house to pay the CG bill.

Hope this helps!