Switching Buy to Let from Interest Only to Repayment
Discussion
I was wondering what the tax implications would be, specifically when I sell, if I were to switch my But to Let property to repayment from interst only where I'm currently at?
I only own one BTL property and this is the way I see it staying for the foreseable.
On current interest rates, I could have the house paid for in 15-20 years if all I do is put all the money the house generates into repaying the mortgage rather than "beer money" at the moment.
I know that every penny the house generates is liable to tax along the way, but what when I sell in 20 years?
I bought the house for £110,000, it's currently worth £125,000 - £130,000.
Let's say in 20 years the place is paid for and is still worth £130,000, am I just liable for captial gains from the £110k - £130k or is it the whole lot minus original deposit?
Sorry for what could well be regarded as noob questions, just not really familiar on how the whole taxation process works.
Thanks to anyone who can help.
I only own one BTL property and this is the way I see it staying for the foreseable.
On current interest rates, I could have the house paid for in 15-20 years if all I do is put all the money the house generates into repaying the mortgage rather than "beer money" at the moment.
I know that every penny the house generates is liable to tax along the way, but what when I sell in 20 years?
I bought the house for £110,000, it's currently worth £125,000 - £130,000.
Let's say in 20 years the place is paid for and is still worth £130,000, am I just liable for captial gains from the £110k - £130k or is it the whole lot minus original deposit?
Sorry for what could well be regarded as noob questions, just not really familiar on how the whole taxation process works.
Thanks to anyone who can help.
You’ll only pay tax on the ‘gains’, so the difference between what you paid for it and what you sold it for. Repaying the equity doesn’t effect the tax situation at all.
The benefit of repayment is that, long term, it will generate a nice little income once paid off. You’ll still pay tax on the income (and won’t be able to claim tax relief on the interest), but in 20 years you won’t be paying a mortgage!
Remember that if you do decide to sell, you will be able to write off costs associated to ‘improvements’ such as putting in a new boiler, windows etc
The benefit of repayment is that, long term, it will generate a nice little income once paid off. You’ll still pay tax on the income (and won’t be able to claim tax relief on the interest), but in 20 years you won’t be paying a mortgage!
Remember that if you do decide to sell, you will be able to write off costs associated to ‘improvements’ such as putting in a new boiler, windows etc
As has been said, Capital Gains Tax is calculated purely on the difference between what the property cost to buy and what you sell it for. How much is still outstanding on any loans at the time of the sale is ignored completely.
Where interest does have a tax impact is the amount of interest you are allowed offset against your annual rental income on the property. This is now restricted and becoming more restricted as each year passes - so paying more interest in future years will not reduce your income tax liability as much as you think.
HOWEVER, the decision as to what type of loan you should have on the property should be dictated to by other factors besides tax. Don't let the tax tail wag the economic dog.
Where interest does have a tax impact is the amount of interest you are allowed offset against your annual rental income on the property. This is now restricted and becoming more restricted as each year passes - so paying more interest in future years will not reduce your income tax liability as much as you think.
HOWEVER, the decision as to what type of loan you should have on the property should be dictated to by other factors besides tax. Don't let the tax tail wag the economic dog.
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