Switching mortgage to BTL and tax implications

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    Switching mortgage to BTL and tax implications

    Evening all,

    I am currently looking to move house and also have a rental property that has around £200k equity in it.

    The rental house had consent to let and on a repayment mortgage and has 3 years to go until I can switch deals.

    I have spoken to a mortgage broker and have decided to pay the ERC on the rental and switch it to a BTL on an interest only deal. By doing so I’ll be able to take some equity out to put towards my new house purchase.

    My question to all those with experience is by switching from a capital repayment mortgage to an interest only will I incur a higher tax bill when submitting my self assessment? I’m pretty sure I won’t because all I submit to HMRC is the total rent received and total interest figure along with relevant expenses?

    Also should I take out equity from my rental would that be subject to CG Tax?

    Thanks all

    #2
    If there is no sale of the property , there is no capital gain and no liability to CGT .

    Comment


      #3
      Gordon999 thanks for your reply. In regards to CGT so if I was due to sell a house I could request to remove all the equity before the sale and wouldn’t be subject to CGT... that doesn’t seem right.

      In regards to switching my mortgage from repayment to and interest only... would I incur a larger tax bill ? I’m pretty sure I wouldn’t because my rental charge to my tenant will remain the same and that along with interest are the only main figures (besides expenses etc) that they are concerned with.

      Thanks

      Comment


        #4
        Originally posted by dotcotton999 View Post
        Gordon999 thanks for your reply. In regards to CGT so if I was due to sell a house I could request to remove all the equity before the sale and wouldn’t be subject to CGT... that doesn’t seem right.
        When you sell the property, you can't retain any of the equity, so that doesn't really make any sense to me.
        On disposal, the mortgage will end and have to be repaid.

        The value of the rental property when first let is also a limit to the amount of the loan against which interest can be claimed. So if the property was worth (say) £300k with £200k mortgaged when it was first let, and it's now worth (say) £600k with £400k mortgaged, you can only claim the interest on £300k of the loan.

        How the hell anyone could possibly find out is a different matter.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          D999,

          The taxman's method of calculating :

          Capital gain is the Sale Price ( say £200K ) minus Purchase Price ( say £130K ) = £70K capital gain.

          But buying and selling expenses are allowable and include the conveyancing cost : say £1K plus estate agent' s selling charges say £3 K.

          So sale proceeds = £200K - £3K ( estate agent ) - £1K ( Conveyancing ) = £196K .
          and acquisition cost = £130K + £1K ( conveyancing ) = £131K.

          So real capital gain = £196K - £131K = £65K .

          The "mortgage repayment" or "loan interest" or "equity removal" are not allowable expenses for calculating the capital gain.

          Comment


            #6
            Thanks for your help

            Comment


              #7
              Interest only mortgages should be banned

              Comment


                #8
                Neelix Why aren’t you a fan?

                Comment


                  #9
                  Originally posted by dotcotton999 View Post
                  Neelix Why aren’t you a fan?
                  Because they distort the market driving up prices at the expense of first tone buyers.

                  Comment

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