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I am due to get 200k of inheritance, I have a second property which i am a landlord should i pay my mortgage of 155K, i am a 40% tax payer but my wife is not only earns 4.5 k a year
The 2nd property is worth 340k
I dont have a mortgage on my house
Hi Gary,You could use some of that money to de-leverage your BTL to below 50% LTV.You could also look using Form 17 for your wife.Additional information: Resources for reducing landlord tax liability It would be a good idea for you to seek professional tax advice. You should only take general concepts from forums in this area as it should be personal to you.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
150k mortgage on a 340k property is only 44% - already below 50%
Doh! Yes, thanks for noticing.
Sorry I didn't make it clear that would then pay the mortgage off
just wonder if any tax implications
Would it have tax implications - of course.
The tax you pay will go up.
This year you can only deduct 75% of you mortgages payments from your rental income before determining the tax rate and amount due. You can then claim 20% relief for the 25% you didn't deduct. Next year it will be 50/50 then 25/75 then 0/100.
Either way the loss of the deduction or the loss of the relief will increase your tax.
However the increased tax paid will be less than the mortgage payments you are no longer paying so your after tax income should increase.
The interesting question is whether that increase in after tax income will be more or less than you could get by doing something else with the money.
sorry im lost on this one, I wont have a mortgage, rent 14k a year divide by 2 = 7k minus roughly wife pays no tax I pay 40% , minus a few bits and pieces
im going to speak to an adviser
Under the old system you effectively get tax relief on your mortgage interest at your marginal rate.
Under S24 you get tax relief on your mortgage interest at 20%
Either way the higher your mortgage interest the more tax relief you get and the less tax you pay.
No mortgage = no mortgage interest = no tax relief = more tax than having a mortgage.
Currently we have a mixture of the old and S24 systems but so the relief is in between the two values.
Assume you pay £10,000 mortgage interest per year and you are a higher rate taxpayer not near a threshold.
Under the old system you deduct that £10k from you income and pay £4k less tax than if you had the same income and no BTL mortgage.
Under S24 you pay tax on the £10k but get relief of 20% so pay £2k less tax.
Currently with a 75%/25% mixture you would pay £3.5k less tax.
If you didn't have the mortgage you would be paying £3.5k more tax but would not be paying the £10k interest so would be £6.5k better off.
The question is then could you make more than £6.5k by using the money you would need to pay off the mortgage for something else.