Hi all!

I read a couple of weeks ago somewhere a piece about BTL from a tax adviser re. cash purchases. I understand you have to wait 6 months after a cash purchase to take out a mortgage.

But he said the mortgage interest in this case WOULD NOT BE TAX DEDUCTIBLE. Can anyone clarify this for me?

I was planning to add to my portfolio this way. Obviously being able to move quickly on a deal is an advantage when you're trying to buy BMV.

Many thanks

Graeme

You CAN get finance within six months a good Mortgage Broker will know the few lenders that allow this. if you can hold on six months you will have a wider choice.

for example Paragon do not follow the CML 6 month guideline. but aldermore requires longer than six.

As for tax, no idea.

I`m no tax adviser so you will need to seek qualified advice but I have bought several properties cash over the years and then taken out interest only mortgages against them at a later date. Some mortgages have been taken out within 6 mths of purchase some after 6 mths. In each case I have claimed tax relief against the interest element of the mortgages

I think the issue is what the borrowed capital is used for. If you re-invest it in your property business then the interest is tax-deductible; if you use it (or part of it) to treat yourself to a yacht or a Ferrari for your own use then it (or that proportion of it) isn't.

If you needed the mortgage to buy the property in the first place then obviously the borrowings were being used to finance your property business so the doubt doesn't arise, but if you had the cash to buy it outright then the interest on the borrowings is only going to qualify for tax relief if you subsequently use them to fund another BTL purchase, carry out a refurb, etc.

Many thanks all of you!

I think the ferrari will have to wait until i have a few more properties- certainly more than the current four!!

I was going to use the released funds to buy more.

Is now a good time to invest in your opinion?

(09-08-2012 10:26 PM)lynne_davis Wrote:  I think the issue is what the borrowed capital is used for. If you re-invest it in your property business then the interest is tax-deductible; if you use it (or part of it) to treat yourself to a yacht or a Ferrari for your own use then it (or that proportion of it) isn't.

If you needed the mortgage to buy the property in the first place then obviously the borrowings were being used to finance your property business so the doubt doesn't arise, but if you had the cash to buy it outright then the interest on the borrowings is only going to qualify for tax relief if you subsequently use them to fund another BTL purchase, carry out a refurb, etc.

Sarah, so where do you stand if the cash used was actually as a result of leveraging equity in your own residence and once you've mortgaged the new property you pay, all of what you take out of the via the new mortgage back into your "leveraged pot"?

Michael

(13-08-2012 09:21 PM)michael_freer Wrote:  

(09-08-2012 10:26 PM)lynne_davis Wrote:  I think the issue is what the borrowed capital is used for. If you re-invest it in your property business then the interest is tax-deductible; if you use it (or part of it) to treat yourself to a yacht or a Ferrari for your own use then it (or that proportion of it) isn't.

If you needed the mortgage to buy the property in the first place then obviously the borrowings were being used to finance your property business so the doubt doesn't arise, but if you had the cash to buy it outright then the interest on the borrowings is only going to qualify for tax relief if you subsequently use them to fund another BTL purchase, carry out a refurb, etc.

Sarah, so where do you stand if the cash used was actually as a result of leveraging equity in your own residence and once you've mortgaged the new property you pay, all of what you take out of the via the new mortgage back into your "leveraged pot"?

Michael

Am I Sarah? Not quite sure what you mean and I'm not a tax expert anyway - better to ask someone like Stephen Fay. But I do know that if you remortgage your own home purely to raise funds for your property business (as we've just done - now have the money burning a hole in our pocket but haven't yet found something to spend it on!) then the interest is tax-deductible, even though the loan isn't secured against a BTL property.

Again I`m not a tax expert but I dont believe it matters what you spend the money on. An interest only loan is against an investment property so it gets tax relief. There are only really 2 main taxes that affect an investor and that is income tax and capital gains tax. When you remortgage and release say 20K you are not taxed on that whether you keep it, spend it on a car or invest in another property. Its not 20K of income so no income tax and its not a capital gain as you having sold a property to realise a gain so no CGT is payable. It is genuine tax free money. I take some for lifestyle and some for investing when I do this.

It enables me to get in effect 100% tax relief on some investment properties. If you build your portfolio at a pace. ploughing back any profits into more properties your tax bill can be non existent and indeed in surplus. You can can carry over the surplus each year. If you stop buying the surplus comes down and you can buy a few more to keep it even stevens. You just have to plan ahead. I didnt pay any tax for about 10 years as I built my portfolio up . Not that I mind paying tax. The larger the tax bill the more you earn and that can only be good.

Is it a good time to invest you ask? Some people say the best time to invest is tomorrow. I believe that too. There is not a day in the last 12 years when I have not thought it a good time to invest. Each property I buy is a mini business. And if I aim to get at least £300 pcm from that business whether it is 2004 2007 or 2012 that means with each acquisition i get an extra £3600 icome pa. And that can only be good. Procrastination is the thief of time.

I am buying properties at around the 2004/ 5 prices now so even with the rise and fall pre and post CC one can argue that you have 8 yrs potential capital growth locked in there which will come back to you one day. If you take the long view and say ok properties may not double every 10 years at the mo but lets say every 20 years. Would you invest in 1 or 2 properties if property prices double in the next 20 years. The answer of course is 2.

The Ferrari drug is just a liability and can wait another year.
Freedom from having to go to work is a much better drug I find.
Build yourself a bedrock of assets

(13-08-2012 10:23 PM)lynne_davis Wrote:  

(13-08-2012 09:21 PM)michael_freer Wrote:  

(09-08-2012 10:26 PM)lynne_davis Wrote:  I think the issue is what the borrowed capital is used for. If you re-invest it in your property business then the interest is tax-deductible; if you use it (or part of it) to treat yourself to a yacht or a Ferrari for your own use then it (or that proportion of it) isn't.

If you needed the mortgage to buy the property in the first place then obviously the borrowings were being used to finance your property business so the doubt doesn't arise, but if you had the cash to buy it outright then the interest on the borrowings is only going to qualify for tax relief if you subsequently use them to fund another BTL purchase, carry out a refurb, etc.

Sarah...

Michael

Am I Sarah? .....

Lynne, I am so sorry, please accept my humble apologies. Is it OK to put it down to me having a senior moment? I sincerely hope that this genuine error will not tarnish our interactions in the future.

Thank you for your guidance toward a tax expert, it is amazing how many elements of property investment make you think, "sure I understand that" and then you realise running it past a qualified expert makes soo much sense.

(14-08-2012 10:22 AM)michael_freer Wrote:  

(13-08-2012 10:23 PM)lynne_davis Wrote:  Am I Sarah? .....

Lynne, I am so sorry, please accept my humble apologies. Is it OK to put it down to me having a senior moment? I sincerely hope that this genuine error will not tarnish our interactions in the future.

Thank you for your guidance toward a tax expert, it is amazing how many elements of property investment make you think, "sure I understand that" and then you realise running it past a qualified expert makes soo much sense.

No problem, it's easily done!