Buy-To-Let??

Open bridging loans ("open" means you have no binding completion date) tend to be difficult to get and expensive, and getting a Buy-to-Let loan (strictly in this case a Let-to-Buy) is a convenient alternative even if your intention remains to sell in preference to letting.

You say your total borrowing would be 70% of the combined value of the houses, but they're not usually lumped together, especially if one will use a BTL loan and the other a "normal" one. You should easily be able to get a loan of up to 80% of the value of the property you say you will let, provided the anticipated rental income (confirmed as realistic by a letting agent) is more than 130% or so of the loan payments.

If you're comfortably within those limits, you may like to borrow a little less on the letting house and instead a little more on your new living-in house because it can be cheaper that way (because the letting loan will typically be charged at a slightly higher interest rate, unless your existing borrower is prepared to give permission to let without increasing the rate). This assumes you continue trying to sell. If you do get a tenant, you get tax relief on the loan interest, and this may make the letting loan cheaper than the living loan. But this won't work if you increase the loan on your existing house above its existing level. Only loans used to buy the property qualify for relief, equity withdrawal does not.

15% is about the max for full management. If you didn't have to get the agent to verify the rent for your mortgage - I'd suggest negotiating. It might be worth seeing if others are better value, but make sure they know what they're doing and check with the Registry Trust to see if they've got any CCJs.

Some use full links here -

hth

Daytona

"Ronald Raygun" wrote

See Example 2 at

When a previous PPR is introduced into a property business, and re-mortgaged at anything upto the latest market value (at the time introduced to business), *all* of the mortgage interest is allowed against tax....

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Example 2

Mr A owns a flat in central London, which he bought ten years ago for

125,000. He has a mortgage of 80,000 on the property. He has been offered a job in Holland and is moving there to live and work. He intends to come back to the UK at some time. He decides to keep his flat and rent it out while he is away. His London flat now has a market value of 375,000.

The opening balance sheet of his rental business showsMortgage 80,000 Property at MV 375,000 Capital account 295,000

He renegotiates his mortgage on the flat to convert it to a buy to let mortgage and borrows a further 125,000. He withdraws the 125,000 which he then uses to buy a flat in Rotterdam.

The balance sheet at the end of Year 1 shows

Mortgage 205,000 Property at MV 375,000 Capital account B/F 295,000 Less Drawings 125,000 C/F 170,000

Although he has withdrawn capital from the business the interest on the mortgage loan is allowable in full because it is funding the transfer of the property to the business at its open market value at the time the business started. The capital account is not overdrawn.

"(15%+VAT for a fully managed service)" sounds a bit pricey. 10%-12% is the `norm`.

Cheers for the feedback all!

Is this only where the property is assigned to a Ltd company?

My understanding was that if you lived in a property worth say 100k and with a mortgage of say 30k, if this loan was increased to say 70k to help purchase a new house to let out the old, the extra 40k would not attract tax relief.

The overriding consideration would be the purpose of the loan rather than what it is secured against. How is this different?

"Tim" wrote

Why do you ask that? - The example quoted doesn't mention a Ltd Co at all.

"Tim" wrote

True for a house *already* within the "property business", but not for a PPR being *introduced* into the property business. Read the example on the IR website. [It may have also been relevant (in the past) to introduction of a PPR into business, but is now as shown in the IR example - which seems to have appeared fairly recently...]

"Tim" wrote

It is different because you are doing it at the time that you introduce the property into the business - an IR concession, if you will. [Consider it like selling the house from "you" to the "business"??]

But that's my point. I though your business and you were effectively one and the same. As you say the example is clear but seems such a turnaround of conventional thinking. I find the concession not in character for the IR!

How extraordinary. This appears to contradict IR150 paras 185-187.

"Ronald Raygun" wrote

Fortunately, IR150 is not law - simply an everyday explanation of the rules for "man in the street". Look at the disclaimer on the last page: "for guidance only", "not binding in law".

You can bet your bottom dollar that if IR150 contradicted law/regulations

*in the taxpayer's favour*, the IR would surely rely on the disclaimer to say that IR150 does not apply! [ - so why not the other way around?]

Well, the manuals aren't law either, they're simply guidance issued internally to tax inspectors. Written by people who are just as fallible as those who write the guidance leaflets for punters.

Clearly one of them must be wrong, and in this case I can't help but think there is at least a possibility that the manual is wrong. It seems to suggest a break with the usual doctrine that a person cannot have a separate persona from himself when acting in a business capacity (as he would have if acting through a Ltd Co).

The increased borrowing would clearly be for business purposes if he had had to buy the proverty at MV when introducing it into the business, but that is not the case. He can't buy it from himself and therefore it doesn't make sense to take out a loan to facilitate a purchase which hasn't taken place.

It would have been open to him to sell the property to an accomplice, and then buy it back using a new bigger loan prior to introducing it to the business, but that hasn't actually happened. I can see why they might be amenable to treat such a situation as though that had happened, but it seems uncharacteristically charitable of them.

Fair enough, but I wonder whether any of our regular readers might be aware of any specific case rulings which could have brought about the interpretation expressed in BIM45700 example 2. Or is it an ESC?