Releasing Equity....... Is there an easy way?

[B.J.W]

Some advice here would be appreciated.

In a nutshell.

I own a house
The mortgage on the house is fully paid and I own it outright.
Let's say the approx value of the house is £180,000
I am currently renting this property out on a monthly basis
The house is also on the market
I am living with my fiancé at her house and paying her mortgage.

We have agreed that we will become joint owners of her house.
This will involve me paying the balance the mortgage, let's say this £80,000

I am interested to know if I can release some of the value of my property (let' say £140,0000) so that I can pay off the mortgage on my fiancé's house, but continue to rent my property out (it brings in a monthly income of £800 which is quite useful)? Is this possible, or would rent be apportioned on the basis of primary ownership of the house? Equally, what would be the tax implications of this (for the rent) and how would this affect capital gains moving forward (as my house will effectively become a second property as I will also own my fiancé's)

I'm a bit confused, and so is my FA because I am not sure that he fully grasps that I own my house outright (or it could be me that's confused).

[Sarnie]

You can do this.

It needs to be a BTL mortgage (or LTB to be accurate)

You would be limited to 75% of the properties value.

You can mitigate the interest amount for tax purposes, naturally you will need to speak to your account about this and CGT.

[B.J.W]

Sarnie said:

You can do this.

It needs to be a BTL mortgage (or LTB to be accurate)

You would be limited to 75% of the properties value.

You can mitigate the interest amount for tax purposes, naturally you will need to speak to your account about this and CGT.

Thanks Sarnie. I will look into this further. My accountant was a little unclear when I asked yesterday.

[SimonV8ster]

Sarnie said:

You can mitigate the interest amount for tax purposes,

I heard about this the other day. This means that you're getting an interest free loan which can't be right ?

What am i missing ?

[HootersGsy]

SimonV8ster said:

I heard about this the other day. This means that you're getting an interest free loan which can't be right ?

What am i missing ?

No, what it means is say you get £800 a month rent, pay interest of £300 you will only get taxed in the net income of £500.

You're still paying interest, you just benefit from the tax deduction. The benefit of which depends on your marginal tax rate.

[HootersGsy]

B.J.W said:

Some advice here would be appreciated.

In a nutshell.

I own a house
The mortgage on the house is fully paid and I own it outright.
Let's say the approx value of the house is £180,000
I am currently renting this property out on a monthly basis
The house is also on the market
I am living with my fiancé at her house and paying her mortgage.

We have agreed that we will become joint owners of her house.
This will involve me paying the balance the mortgage, let's say this £80,000

I am interested to know if I can release some of the value of my property (let' say £140,0000) so that I can pay off the mortgage on my fiancé's house, but continue to rent my property out (it brings in a monthly income of £800 which is quite useful)? Is this possible, or would rent be apportioned on the basis of primary ownership of the house? Equally, what would be the tax implications of this (for the rent) and how would this affect capital gains moving forward (as my house will effectively become a second property as I will also own my fiancé's)

I'm a bit confused, and so is my FA because I am not sure that he fully grasps that I own my house outright (or it could be me that's confused).

The income side of this is covered above. On CGT, yes you will probably have a taxable gain if you sold it but there is letting relief available for upto £40,000 of the gain, and then you will have whatever of your annual CGT allowance remains unused. Once married, you could transfer ownership into joint names (tax free as an inter spousal transfer), then when you sell you will have two persons annual allowances to use.

HMRC do actually have some reasonable advice pages on CGT related to property http://www.hmrc.gov.uk/cgt/property/sell-own-home....

[budfox]

HootersGsy said:

No, what it means is say you get £800 a month rent, pay interest of £300 you will only get taxed in the net income of £500.

You're still paying interest, you just benefit from the tax deduction. The benefit of which depends on your marginal tax rate.

...which is of course a disgrace. A perk reserved for those who can afford multiple homes, which helps to price others out of buying even one.

[paulrockliffe]

It's no different to running any other business.

[Mashedpotatoes]

Sorry but am I missing something ? You want to release some equity in one house to pay off the mortgage on another ? I don't see the point. It's like borrowing off Peter to pay paul.

Edited by Mashedpotatoes on Sunday 17th November 20:34

[HootersGsy]

It does make sense if the numbers stack up.

Say the residential mortgage is at 4% and a BTL can be got at 5%. The interest on the residential mortgage is not allowable for tax purposes but the BTL one is (so long as the BTL property produces enough income to offset the interest) so if you're a higher rate tax payer the 5% interest only actually 'costs' you the same as a 5*0.6=3% residential mortgage.

[98elise]

paulrockliffe said:

It's no different to running any other business.

Exactly, a lot of people don't seem to understand even the basics of business. Its a bit like the inability to understand that turnover and corporation tax are not related, no matter how much papers and politicians try to link the two.