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Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13866
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Sam, Following on from the IHT question regarding the

Resolved Question:

Hi Sam,
Following on from the IHT question regarding the BTL I am continuing as a new question as I have unlimited membership so it is easier for me to ask as a new question. Hope that's ok for you.
They are looking to remortgage the BTL property so not looking to sell it now so no CGT now. They will raise £250k from refinancing this to buy another property which will be their main residence.
Is this a good way to reduce their assets and utilise the new IHT thresholds?
Thanks,
Mary
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi Mary Thanks for your new question and asking for me. Thats fine that they remortgage - just make sure that if they plan t claim the interest on the remortgage against the Buy to let rental income that the amount borrowed is not in excess of the original value of the property - And then you are right there will then be no Capital gains arising - I think doing this then utilises the new family allowance - as long as the property is in joint names and no more than £250,000 but I would not action this until after the new legislation comes into play (set possibly for 06/04/2016) and that the buy to let on which the capital will be raised, had a value of at least £250,000 at the start of the buy to let income (to keep that in line with a permissible purchase and the interest then allowable against the rents (which will create further savings of tax against the joint rental position) and of course that they take any necessary financial and legal advise (as Im just the expert in tax- there are legal and financial experts also on Just Answer -and as you have a membership now - worth making use of that!) Let me know if I can assist further with this ThanksSam
Customer: replied 1 year ago.

Hi Sam

Thank you for your answer.

Can I please clarify your points just to ensure I have the correct understanding of everything:

'...just make sure that if they plan t claim the interest on the remortgage against the Buy to let rental income that the amount borrowed is not in excess of the original value of the property -...

...and that the buy to let on which the capital will be raised, had a value of at least £250,000 at the start of the buy to let income (to keep that in line with a permissible purchase and the interest then allowable against the rents (which will create further savings of tax against the joint rental position)'

Do you mean the current market value or original value that they purchased at?

The BTL property has a current market value of approx £400,000-£425,000. They are looking to raise £250,00 from this and will purchase a property for approximately £250,000.

The original purchase price of the BTL that they are refinancing was £95,000 purchased in 1999.

As the original purchase price was below £250k in 1999, is this a problem to do this?

Many thanks.

Mary

Expert:  Sam replied 1 year ago.
Hi Mary
As the original purchase price was £95,000 then whilst they can borrow more, only £95000 of whatever they borrow can be considered as a relevant loan (so in essence 95/250 x Interest will be an allowable claim against the rental income.
So they just need to be mindful of this
Thanks
Sam
Customer: replied 1 year ago.

Hi Sam

My parents have remortgaged other properties in the past and this has not been raised by the accountant, I believe all interest on the mortgage payments have been claimed against the rental income. As far as we understood, it was just any capital repayments that cannot be offset?

So if they remortgage at £250k, only the interest paid on £95k can be claimed against the rental income?

So for all BTL properties, you can only offset interest up to the original purchase price?

Can you please also explain what a 'permissible purchase' is.

Many thanks,

Mary

Expert:  Sam replied 1 year ago.
Hi Then it should have been raised - and this concerns me then your parents may have over claimed allowable mortgage/loan interest -Yes if they remortgage for £250K then only interest of the £95K is allowable See legislation here that refers to this factor from the HMRC manual when looking at withdrawing capital from the property.(which in essence what a remortgage is) http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm you can see it all hinges on the assets (property's) value at the start of the it making money (so start of first rental) And finally a permissible purchase meant that it did not exceed the original value as oulined above. Thanks Sam
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