Buy to let followed by main home conversion help

Buy to let followed by main home conversion help

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The Stiglet

Original Poster:

2,062 posts

195 months

Monday 9th March 2015
quotequote all
We live in a period terraced house, which is split into two multi-level maisonettes. The property below us has recently come on to market and we are thinking about purchasing this using a buy to let mortgage and renting it out. We would release some equity from our primary residence to do this by extending our mortgage.

In the next 3-4 years, we might want to convert the building back into a single primary residence but I'm wondering how this would work with two different mortgages and from a tax angle?

Would we need to sell the flat downstairs to ourselves and then pay CGT? Or can the mortgages simply be converted into a new mortgage and CGT avoided?


Claudia Skies

1,098 posts

117 months

Monday 9th March 2015
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You currently own the legal title to "upstairs".

If you buy "downstairs" you will own two separate legal titles. They would normally stay separate unless and until you sold the whole building as a single large home to a single purchaser.

In other words, your situation would be exactly the same as owning two detached houses next door to each other. The fact they are in the same building makes no difference. Just the same as if you owned both halves of a semi.

Claudia Skies

1,098 posts

117 months

Monday 9th March 2015
quotequote all
The Stiglet said:
Would we need to sell the flat downstairs to ourselves
No.

The Stiglet said:
and then pay CGT?
No.

Although you would need to keep a detailed record of the value of the BTL at the time of conversion, together with details of any money spent on significant improvements for use as a BTL. This is because you could be liable for some CGT when you eventually sell the whole building.

The Stiglet said:
Or can the mortgages simply be converted into a new mortgage?
You would need to talk to the mortgage provider(s).

(or you may decide not to talk to them..... Be aware that whilst this is a possible strategy it should not be undertaken without a full understanding of the implications.)

The Stiglet

Original Poster:

2,062 posts

195 months

Monday 9th March 2015
quotequote all
Claudia Skies said:
You currently own the legal title to "upstairs".

If you buy "downstairs" you will own two separate legal titles. They would normally stay separate unless and until you sold the whole building as a single large home to a single purchaser.

In other words, your situation would be exactly the same as owning two detached houses next door to each other. The fact they are in the same building makes no difference. Just the same as if you owned both halves of a semi.
We own the shared freehold to the building along with our 'downstairs' neighbour through a dormant company so by combining the two, we'd own the whole plot.

It would be a pretty substantial house if we knocked through the walls and reinstated the original rooms. This would also require quite a significant amount of investment, which would obviously not be immune from CGT if under the BTL mortgage.

I would also prefer the lower rates offered through our current primary mortgage as a long term option rather than the two entities you speak of working in tandem.

It's quite confusing as to what the next legal steps would be and the financial implications to HMRC.

Claudia Skies

1,098 posts

117 months

Monday 9th March 2015
quotequote all
The Stiglet said:
We own the shared freehold to the building along with our 'downstairs' neighbour through a dormant company so by combining the two, we'd own the whole plot.
Then you will own three separate titles when you buy out the folk downstairs. 1 = upstairs. 2 = downstairs. 3 = as sole owner of the company, the building/plot itself.

The Stiglet said:
It would be a pretty substantial house if we knocked through the walls and reinstated the original rooms. This would also require quite a significant amount of investment, which would obviously not be immune from CGT if under the BTL mortgage.
If you are converting to owner/occupier you won't be entitled to claim the costs as part of your CGT base cost. The only costs you can claim relate to buying the BTL unit and getting it ready for rental. In contrast your home is exempt from CGT.

The Stiglet said:
I would also prefer the lower rates offered through our current primary mortgage as a long term option rather than the two entities you speak of working in tandem.
Yes indeed. As they say, you can't have your cake and eat it. At least, you shouldn't.

If you are serious about this proposal you need three types of advice, (i) property, (ii) tax and (iii) finance. It's possible that you have a solicitor who can provide them all but a day-to-day conveyancer may well be out of their depth with this one.

oop north

1,596 posts

129 months

Monday 9th March 2015
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You might need planning permission to convert to one property, also... A quick call to planning authority should answer that but then you might need to plan (no pun intended) for getting that permission