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  • Mortgages & Finance

    Moving to repayment mortgage better for tax?

    Hi All

    Ive had look around and cant see this discussed.

    With the Sec 24 and only 20% of mortgage cost allowable, would it make sense to move from interest only to repayment.

    ie increase the overall mortgage costs from say £400 to £800 per month, which is now paying the principle down and increasing the actual cost amount to offset on your tax return

    (assuming a full time higher rate tax payer and BTL monthly profit not the main driver)

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    Only the interest payments are (now partially)  offsetable against tax.

    Any capital repayments are not now or ever offsetable against tax. - Capital repayments have to be made out of post-tax profits.
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    DISCLAIMER just my personal opinion - for legal advice consult a qualified professional grown-up.


    OK, I missed that, I've always used I/O finance (and not many houses) so the thought just crossed my mind. Need to find another way to utilise the surplus. I may increase the LTV an purchse another then...

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    Interest only is a way many can get on the property ladder and others leverage up.

    As we know this is not the best thing and many financial institutions are not so quick to lend this way unless you have some potential repayments in place. I have always suggested repayment if you can and at least you reduce your debt over time.

    Even small over payments can reduce repayment period by years. Now interest only appears to be used buy the BLT property sector to gain leverage so every one to his own situation.

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    One cannot advise based on this information. The question is what would you do with an the £400 pcm if you did not repay the mortgage. If it is not a better after tax rate of return than the interest rate then you should repay the mortgage. Obviously attitude to risk and flexibility need to be considered too.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Only Interest element is tax deductible irrespective of S.24.

    If you have a £96k o/s IOM at 5% interest that is your existing £400 pcm finance cost

    Same loan over 25 yrs Repayment basis will cost around £562 pcm - so net cashflow reduced by £162 pcm - or even bigger reduction if over shorter term. 

    If you do elect to go Repayment route the extra cost of Principal repayment would be a CGT offset when you sell.

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    I think its wise to set aside funds to pay down mortgages as required

    My Guess Is the Tories are going to increase the 20% threshold in coming years

    if this happens it will help with S24

    I do pay down mortgages and I set aside money into ISA fund

    just to keep some flexibility

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Thank you, I have spare cash flow and always used I/O finance (i only really dabble in BTL) I work full time so Im looking at the best use for the rental surplus. Maybe a parallel invetsment straregy outside proprerty is a good idea

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    Just keep your option open

    Look at pensions ISA and Capital and repayment

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    thank you all as always for the immediate responses

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