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Buying to let or Occupy?


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Firstly. I would like to express my gratitude. In discovering such a relative and informative forum.

I am a small time proerty investor. My portfolio extends to three dwellimgs. Comprising my principal home. Jointly owned and with no secured loans set against it. Including a mortgage.

A lease-hold, self contained. 1 bedroom flat, term 125 years, with 90 years remaining. The title for the lease is solely in my name. There are no secured loans outstanding.

I am interested in obtaining the common hold to the title. If it would be beneficial for me to do so ?. The property has been unoccupied or funished for 18 months now.

It concerns me that I am paying a full council tax charge on this dellimg without any IR tax relief. When I see council tax discounts of up to 25% are obtainable from other local authority's for empty properties. A justifacation for the poll tax I fear.

Finally my most recent property purchase is a Buy to Let house. Obtained with a cash deposit of 65.5% and a buy to let mortgage of 34.5% approx of the purcahsse price.

I receive a £400 pcm rental from my tennant. Which services a £128 pcm interest only but to let mortgage.

I fully appreciate that my buy to let mortgage payments qualify as a capital allowance..

My Questions therfore, now I have set my stall out is. Given that I own / co own the lionshare of my proprty assets and that the flat will be re-let from the 1/7/06 realising a weekly rent of £70 ?.

I am wondering wether I would be able to raise finance to further purchase more buy to let property Or finance the purchase of another owner occupied home ?.

Income from employment aside.

Could I raise capital on tha basis of a combination of owned equity and rental income?.

As there are experts who respond to this forum. It is hoped someone might be able to furnish me with the information that alludes me at present.

Namely can I move up a rung or two on the property ladder?. What is a realisable objective I can set myself for me to further my ambitions?. Some guidance please.

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Hi Gary

I am a Chartered Tax Adviser so can help with the tax and allowable side of things.

You are allowed to raise finance up to 100% of the value of a property when it is first let. Therefore, as you have only raise finance of 35%, you can raise a further 65% and claim the interest.

This is a little known fact that many accountants have not yet cottoned on to but it have been debated and is true.

The two situations are as follows:

1. You can take a loan on your own home to finance the purchase, and the mortgage interest is deductible against the rental property income


2. You can take a mortgage secured on the property in question up to 100% of the value of the property at first let (in your case purchase price) and do with it what you will, if you want to buy a sports car - you can!!

The key is establishing a connection. In option 1 the connection is the purchase of property. In option 2 (more likely to top up - so ideal in your case) the connection is the security on the property.

Many people will, if they read this be dubious of option 2 - but I promise you it is the truth! I have put this in place for clients and it is even sort of explained in the Inland Revenue Manuals. I wont bore you with the accounting, but broadly it is to do with the change in the way that lettings buinesses are now recognised. You are allowed to draw 'capital from your letting business' up to the level of injection.

Hopefully this example will help.

A property was purchased for £100k on which a £65k mortgage was taken. 4 years down the line, the mortgage was down to £60k, however the own wanted to buy a sports car for personal use, costing £50k. He maxes out the mortgage on the letting property to £100k by taking another £40, pays the balance in cash.

HQ. ow much interest is allowable.

Answer - all of it - mortgage interest is avaiable on a loan of up to £100k.

Taking this example further, in 15 years time, the mortgage had now reduced to £80k. The property was now worth £150k, and the property owner wanted to buy another sports car for £50k. He therefore ups his mortgage to £130k to pay for the car.

Q. How much interest is allowable

Answer 100/130ths. Irrespective of how much a property is currently worth, the key figure is the value of the property when it entered the business - thus interest on only £100k is allowable.

It is however important to note that the allowable interest is considered to be the top slice and as such, in the example above, assuming that in another 10 years the loan is now down to £100k - the whole amount is allowable - the private element is the bit that is assumed to be paid first.

Hope this helps as a first step - any questions, please ask



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