Taking equity out of a B2L

[b0redom]

Hi,
I have already searched, and I can't find anyone who's asked the question. I have a B2L which I've had for years, and it's recently spiked in price. If I take a chunk of equity out of it in order to pay off a chunk of my domestic mortgage/buy a new B2L/fund my hookers and crack habit are there any tax implications? I would have thought that when I come to sell the property I'll still have to pay capital gains on the increase so HMRC will still get their pound of flesh, but I presume that there's some way the taxman will get his mitts on it?

Cheers...

b0redom

[Murder1]

I can't offer any advice but I too am starting to look into the prospect of getting a BTL through the Ltd Co. If you've anything with regards to online resources, books or advice on who best to speak to with regards to BTL's through the company I'm all ears (either reply or PM is fine).

I'll even make a Paypal donation to your hooker and crack habit pot

[ContrataxLtd]

Hi,
I have already searched, and I can't find anyone who's asked the question. I have a B2L which I've had for years, and it's recently spiked in price. If I take a chunk of equity out of it in order to pay off a chunk of my domestic mortgage/buy a new B2L/fund my hookers and crack habit are there any tax implications? I would have thought that when I come to sell the property I'll still have to pay capital gains on the increase so HMRC will still get their pound of flesh, but I presume that there's some way the taxman will get his mitts on it?

Cheers...

b0redom

You need to ensure that your capital account doesn't become overdrawn or else some of the mortgage interest on the BTL would be disallowed for tax purposes. What this basically means is that you can't increase the borrowing on the property to a level greater than the the value of the property when it was first rented out.

Financially, whether it's worth increasing the BTL mortgage to pay off a residential mortgage depends on many things but not least the effective rates of interest on each property.

HTH

Martin
Contratax Ltd

[northernladuk]

I can't offer any advice but I too am starting to look into the prospect of getting a BTL through the Ltd Co. If you've anything with regards to online resources, books or advice on who best to speak to with regards to BTL's through the company I'm all ears (either reply or PM is fine).

I'll even make a Paypal donation to your hooker and crack habit pot

This isn't about BTL though the company. I think OP is talking about personal tax. It isn't efficient to buy a property through the limited. Do it personally.

[northernladuk]

Hi,
I have already searched, and I can't find anyone who's asked the question.

You da man!!!



EDIT : But did you ask your accountant?

[b0redom]

You need to ensure that your capital account doesn't become overdrawn or else some of the mortgage interest on the BTL would be disallowed for tax purposes. What this basically means is that you can't increase the borrowing on the property to a level greater than the the value of the property when it was first rented out.

Financially, whether it's worth increasing the BTL mortgage to pay off a residential mortgage depends on many things but not least the effective rates of interest on each property.

HTH

Martin
Contratax Ltd

So, hypothetically speaking, if the value of the property when it was 1st let out was £250k, and the house is now worth £500k, I can't borrow more than £250k in total without interest being disallowed? Is that right or did you mean something different? How do I know what it was worth when it was originally let? Is there some formula?

[ContrataxLtd]

So, hypothetically speaking, if the value of the property when it was 1st let out was £250k, and the house is now worth £500k, I can't borrow more than £250k in total without interest being disallowed? Is that right or did you mean something different? How do I know what it was worth when it was originally let? Is there some formula?

Yes that's correct, if it was worth £250k when first let out that it the maximum mortgage that can be secured on the property without interest being disallowed. If you were to remortgage up to £500k (hypothetically speaking as you will struggle to get a 100% mortgage) then half the interest would be disallowed.

However, if the extra £250k in capital from the remortgage was used to purchase another BTL then the disallowed interest would be in fact be allowed against the second BTL and because all rental properties would be grouped together (assuming no overseas rentals or FHL's) for tax purposes you will effectively get tax relief on all the interest.

If you were to use the extra £250k against a personal mortgage, spend it on fast cars/women or spend it on hookers/a crack habit then you would miss out on tax relief on that bit of interest.

If the hypothetical figures are anywhere near realistic it's definitely worth having a chat with your accountant and running through your plans/what you want to achieve to ensure you do it as tax efficiently as possible. It sounds like there are some tax planning opportunities here!

Martin
Contratax Ltd

[THEPUMA]

This isn't about BTL though the company. I think OP is talking about personal tax. It isn't efficient to buy a property through the limited. Do it personally.

Whilst this is probably more often than not correct, it is certainly not as aboslute as you make it. There are circumstances where corporate ownership would be preferable to personal ownership.