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bigduckontax, Accountant
Category: Tax
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I own outright the property my business trades from. The property

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I own outright the property my business trades from. The property is held within my SIPP and there is no debt. I own my home outright again has no debt. I propose to re mortgage my home which has a value of £360,000 to raise £160,000 to buy my business premises out of the SIPP. I understand all the latest changes to pensions and I am 52 but I cannot stomach my SIPP provider charging more and more fees and the lack of control I have over a property that I own. I expect to retire in 15 years time and sell the property and fully understand that I would not be sheltered from capital gains at that point. What I want to know is the tax implications of an interest only mortgage versus a repayment mortgage over the 15 year term.

Hello, I'm Keith and happy to help you with your question.

There is no mortgage interest relief allowable against Income Tax, not, indeed has there been for about 20 years now. The only time mortgage relief is available is against premises which are used for your business and that is against the interest element of mortgage payments only.

Your new mortgage will be, if I read your question correctly, against your sole or main domestic residence, so mortgage interest relief does not come into play. The fact that you are using the funds generated to buy the business premises out of the SIPP is irrelevant. You could try running the scenario you propose across your tax office, but I have little doubt that they will view any relief with a very jaundiced eye. You are not borrowing money on your business premises; solution, mortgage those not the residence.

Even if HMRC were in agreement to this proposed procedure and will allow the interest to be set against profits the difference in tax terms is that on a repayment mortgage the interest element only is allowable against tax whilst in an interest only mortgage the whole annual payment is allowable. The danger with the latter is that you will need a capital sum to clear the loan on your ultimate retirement. Furthermore, You are putting your own residence at greater risk in the process.

I do hope I have been able to shed some light on your suggestions.

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