Tax Question

[fisherman]

Hello

I currently have my first BTL. This is 86/87% financed by a BTL mortgage.

What are the tax issues regarding any captial increase, i.e mortgage reduction, in other words if I were to invest captial to obtain a better mortgage deal at remortgage stage? Would any amount I invested be due to captial gains tax, or is this ONLY applicable to the property price differential to purchase price?

Thanks

Stuart

[plym77]

Hi Fisherman

Have a look at my other posts on the subject of mortgage interest. I have however for ease copied some of the information of to this post:

To clarify for all, you can mortgage the buy to let property and claim tax relief on the interest up to the value of the property at introduction to the letting business. So if that was at purchase, it is your purchase price, but if it was previously your PPR, then it is the value at the date the property was introduced to the letting business.

The loan secured on the BTL can be used for any purpose, whether home improvements or buying a sports car even! The reason is that you can extract money from the capital introcudes (ie. the BTL property)

Interest Relief can be claimed on the propertion of the loan up to the value at intro

I will clarify by an example. You buy a house in 1990 as your PPR for £100k, you introduce it as a BTL in 2000 and it is worth £200k. In 2007 it is worth £250k. You can mortgage the property and claim interest relief on a loan up to £200k. If you take a mortgage for say £220k, then you can claim mortgage interest relief on the £200k up to the point that the whole loan starts to drop below £200k (for example, if you have a repayment mortgage). The BTL qualifying interest forms the top slice of the loan, and therefore any repayment will pay off the non-qualifying part of the loan first.

For a higher rate taxpayer, a loan rate of 6% is just 3.6% after tax relief and it is likely therefore that funds could assist in 'growing' someones wealth.

You can also secure finance for a BTL against your own home, but care in structuring should be taken to ensure that you do not jepordise your tax relief. This can be a good source of finance as often home loans can be offered at lower rates.

I hope this helps. Should you need specific advise, please do contact me.

Kind regards

Sherena Glanton CTA

sherena.glanton@target-accountants.com

direct dial 01225 486 359