Buy to let remortgage - could it save me tax?

shona_2

Hi
I have a house that I rent out, with a mortgage of about £27k (house worth about £135k) near Perth in Scotland.

I get £490 rent/month for it.

Currently I have an old Sainsbury's mortgage at about 6.3%, but I'd like to increase the mortgage amount (ie borrow more) as I think this would save me tax - is that right?

Any advice gratefully received!

thanks

Shona

fengirl_2

The question is, what are you going to use the additonal money for? Only interest paid on a loan to purchase the let property will attract tax relief.

Murdina

You can remortgage for a larger amount, use the capital elsewhere and still claim the interest as a deduction against tax.
But as with any tax planning, do not let the tax tail wag the dog. Do you really want a bigger loan? What are you using the capital for? What if house prices fall, or you cannot get a tenant (these are not questions I want to know the answers to, but ones you should consider before remortgaging).

Murdina

Fengirl is not quite right. Letting is treated as like a business in that you have a balance sheet and can in effect borrow up to the amount of your capital to withdraw that capital. It is not the case that you can only claim relief for interest on the original loan to buy the house. Have a look at http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm
both to have formal confirmation HMRC agree and to see how exactly this works.

Smi1er

What was the value of the property when introduced to the letting market? Because that is the most interest you can offset against tax.

For example if the house was worth £85K when first let out then interest on a £85K mortgage is the most you can offset against tax

shona_2

Smi1er wrote: »

What was the value of the property when introduced to the letting market? Because that is the most interest you can offset against tax.

For example if the house was worth £85K when first let out then interest on a £85K mortgage is the most you can offset against tax

thanks everyone so far.

Ahhh - it was probably only only worth about £80k

To be honest I only wanted to take the money out as I thought it would save tax. I would like to get more properties, but I feel I have missed the boat to make money....

Shona

HugoSP

shona wrote: »

thanks everyone so far.

Ahhh - it was probably only only worth about £80k

To be honest I only wanted to take the money out as I thought it would save tax. I would like to get more properties, but I feel I have missed the boat to make money....

Shona

Wait and see.

We picked up an absolute bargain in October of last year. Owner desparate to sell after his chain fell through, and knocked some £20k off the price to get us interested, the took an offer on that.

Before the credit crunch I was considering mortgaging our own home, then renting that out and buying somewhere else with the cash in the longer term.