Extracting equity from a B2L

**MarillionFan** · 17 July 2015, 09:48

Originally posted by b0redom View Post

Hi All,
Assuming that not everyone claiming to have B2Ls here is a Walter Mitty type.....

I've got a B2L house. It's worth about £500k and the mortgage on it is about £200k. I was considering pulling £200k out of it to pay off a big chunk of the mortgage on my house. Is there any tax liability to pay if I do that?

The other alternative I've considered is to pull out the £200k and invest it into something else. I've had conflicting advice as to whether it's taxable if I don't invest it in the same category of investment (ie another B2L) rather than say FTSE unit trackers....

Anyone have any experience doing this?

There's no tax liability that I'm aware of. Obviously when you eventually go to sell your BTL there may be capital gains to pay at that time.

I've got two. I recently remortgaged one for a large pension contribution and in that case was able to get tax back via my SA.

Now remortgaging the second, as I was either going to buy a new house personally and put more cash towards it, another couple of BTLS, or frankly invest it elsewhere. Again, there's no liability for taking it out.

**tvr450** · 17 July 2015, 11:12

That is interesting, can I re-mortgage a BTL and put the money in my pension? I have a feeling you can't put more money in a pension than you earn in a year (Salary, not including dividends)?

It would be quite attractive to put a couple of hundred thousand into my pension and get the relief?

**Pondlife** · 17 July 2015, 11:27

Originally posted by tvr450 View Post

That is interesting, can I re-mortgage a BTL and put the money in my pension? I have a feeling you can't put more money in a pension than you earn in a year (Salary, not including dividends)?

It would be quite attractive to put a couple of hundred thousand into my pension and get the relief?

You're not earning it, you're borrowing it.

**Pondlife** · 17 July 2015, 11:32

Sorry if this is off topic but as I was replying I had a thought.

If you buy a BTL for £100k then over the years re-mortgage and extract the equity, then sell the house for £300K but with a £275k mortgage, would you then be subject to CGT on 300k-100k (plus whatever the allowance is)?

**MarillionFan** · 17 July 2015, 11:38

Originally posted by tvr450 View Post

That is interesting, can I re-mortgage a BTL and put the money in my pension? I have a feeling you can't put more money in a pension than you earn in a year (Salary, not including dividends)?

It would be quite attractive to put a couple of hundred thousand into my pension and get the relief?

Yes

Originally posted by Pondlife View Post

You're not earning it, you're borrowing it.

Not quite.

You can pay in an amount of 40k per year into a private pension which can be offset against tax. Depending on your rate of tax 20/40/45 you get that back (but only this year now because Osbourne is an arsehole and just scrapped that to 20%)

You can also go back 3 years and use up any allowances which you didn't previously use. That was 50k a year, so in theory you could pay in 190k if you hadn't paid in previously.

To pay in 190k in one go, you would need to make a payment to a pension company of 152k, which 38k would be the 20% tax (of 190k) which the pension company gives you in one go. If you were a 45% tax payer, you'd get back another 25% of the 190 which would be 47.5k in your SA

So effectively you would get 190K in your pension for putting in 104.5k.
You can only pay in up to what you earned, so you'd have to earn 190k or greater to do it in one go.

So that's what I did, I remortgaged a house and did above. But it all goes away in April.

Osbourne you

**MarillionFan** · 17 July 2015, 11:39

Originally posted by Pondlife View Post

Sorry if this is off topic but as I was replying I had a thought.

If you buy a BTL for £100k then over the years re-mortgage and extract the equity, then sell the house for £300K but with a £275k mortgage, would you then be subject to CGT on 300k-100k (plus whatever the allowance is)?

Gains would be on the 300-100. So 200. It doesn't matter what you take it out, you pay when you sell.

**b0redom** · 17 July 2015, 12:36

That was my understanding too. I seem to remember reading though that you can only claim relief on the interest payments up to the value of the house when you first let it, so if you bought it for £200k, let it immediately, and then the value of the house goes up to £500k, and you up the mortgage to say.... £400k, you can still only get relief on the interest payments up to £200k.

All pretty academic though, since George is removing the interest relief imminently.

**MarillionFan** · 17 July 2015, 13:06

Originally posted by b0redom View Post

That was my understanding too. I seem to remember reading though that you can only claim relief on the interest payments up to the value of the house when you first let it, so if you bought it for £200k, let it immediately, and then the value of the house goes up to £500k, and you up the mortgage to say.... £400k, you can still only get relief on the interest payments up to £200k.

All pretty academic though, since George is removing the interest relief imminently.

In answer to your PM. Funnily enough an article in todays DM

Britain's buy-to-let property hotspots revealed | Daily Mail Online

**meridian** · 17 July 2015, 14:45

Originally posted by b0redom View Post

I've got a B2L house. It's worth about £500k and the mortgage on it is about £200k. I was considering pulling £200k out of it to pay off a big chunk of the mortgage on my house. Is there any tax liability to pay if I do that?

An accountant may be along shortly to correct me, but I didn't think this was the most tax-advantageous way of doing things.

You might be adding £200k onto your BTL mortgage, but you would not be able to claim any interest expense on it because the money has been used privately.

Extracting equity from a B2L