Crystal Ball anyone ?

by Readers Question

10:12 AM, 4th February 2015
About 4 years ago

Crystal Ball anyone ?

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Crystal Ball anyone ?

My flat in 2001 cost £190k. It has been rented most of the last 12 years and yields about £900pcm. I still owe £40k on a variable rate interest-only mortgage which is due in August 2015. Market value is £300k.

Keeping the flat was meant to provide retirement income instead of committing to a pension pot and annuity. Now the rules have changed, but you still can’t put a residence into a SIPP (yet) and any transfer would realise the gain … or would it?

Plan A is to pay it off because I have a much-reduced income and am loathe to re-mortgage on expensive buy-to-let terms. An endowment is in place to do this.

What are the alternatives – to mitigate what is a growing CGT liability, after PRR and Lettings Relief the bill would be massive. Is there a way of spreading out the realisation of the capital gain?

The best way to cheat CGT is to die of course, which I fully intend to do some day, so there is a strong argument for keeping the flat. Oh to be rid of leasehold problems though!

New to this and I’m sure I need professional advice, but I’m never sure who to ask.

Many thanks

Markcrystal ball



Comments

Neil Patterson

10:25 AM, 4th February 2015
About 4 years ago

Hi Mark,

First of all can I just confirm that you should not act upon or construe any comments as professional advice unless by a fully qualified and insured IFA that has completed a full fact find with you. However your question is interesting to a lot of our readers I am sure 🙂

A question that immediately springs to my mind is do you need to pay off the BTL mortgage? Are you better off using the endowment funds for something else?

But we don't know:
Your age
When you plan to retire
What your income is now
What your income will be on retirement

This is important as a BTL can be tax efficient especially for high rate payers.

Hopefully one of our IFA partners can put this into context for you along with retirement planing and estate planning.

Howard Reuben CeMap CeRER

11:00 AM, 4th February 2015
About 4 years ago

Of course CGT is liable in most cases payable on the disposal of investment properties.

If you keep your property, then a long term fix capital raising refinance could help you to achieve possible extra cash and monthly income.

To confirm the actual net benefit you would need to meet and discuss your personal and financial circumstances with appropriate Advisers. For specific mortgage strategy options you can contact me / my team via my profile link.

I'm not sure you'll get relevant and specific advice on a general forum as it is always horses for courses.

John Constant

11:14 AM, 4th February 2015
About 4 years ago

Good morning Mark,

first of all, I would like to make a comment on your query, as one of Property118's IFA partners mentioned above by Neil.

I do not profess to specialise in the taxation aspect, so I will steer well clear of that. I can, however, offer my professional advice regarding the mortgage side of things.

Neil is correct in that there are many questions that we do not know the answer to at the moment, but I would like to correct your statement about BTL rates being expensive.

You say that you have an endowment to repay the mortgage, so we are looking at an Interest Only BTL mortgage. I assume that there are no shortfalls on the Endowment, and the projected sum will repay the balance in full on that joyful day! (If not, you might want to look at a mixed mortgage, part repayment, part interest only).

You have stacks of equity in your property, so that means that you will be looking at first class rates. We can also look at minimising the costs, so no legal package, no valuation payments and no arrangement fee to be paid.

I can't make any great assumptions about a specific rate for you because of the unknown factors previously mentioned, but I would be upset if we couldn't get a monthly payment very close to £100 per month. Is that expensive? If you were willing to pay some of the fees, we could be looking closer to £70 per month.

If you would like us to investigate this further for you, please look at my profile and contact me from there.

Les Charneca

15:05 PM, 4th February 2015
About 4 years ago

Personally I would not use an endowment to pay the mortgage. BTL interest only on £40K is so cheap, definitely sub £100 a month, fixed for years! It's never been that cheap!

Ok, this not professional advice but in your position (bearing in mind you have missed out lots of info) and I know nothing about your future plans. I would (a few of these are light hearted):

a: Kick out the tenant and move in. Sacrifice the income for a while and live off the endowment for a couple of years then sell it CGT free.

b: As an alternative borrow a large sum against the property, right off the interest and live of the cash (remember to amortise the cash over your expected lifetime)! Most IFA's will go down this route.

c: Or, move to a sunnier climate (choose a low tax country), then flog it once abroad! Keep 100% off your cash and if you can be bothered to go to the UK, make sure it is for for no more than 90 days a year for at least 5 years.

d: Leave the country again and sell it, but this time don't bother with a foreign residence; just drive, ride, sail, cycle, walk around the world for a few years and see what is out there. You will probably never come back,

e: This one is not illegal, but probably immoral and I bet Mark will have a few things to say to me! You could borrow the maximum 80% of the £300k that is worth and whilst the rent covers the interest not worry, write off the interest off your tax and spend the excess on women, wine and gambling (if there is anything left you can waste it), when rates rise and it no longer covers it just default on the loan. You have got 80% of you cash out tax free and written off 40% of the interest against tax! You won't get credit ever again, but if you are at a stage of your life that you don't care about that it works.

Mark Time

19:10 PM, 4th February 2015
About 4 years ago

Thanks all for your advices and well done Les very funny.

I would like to prolong and maybe extend the mortgage by drawing back over-payments and use the proceeds and the endowment on other things.

But

I am 49 and 3/4
My employment income is trivial

So my mortgage is not BTL, but could become so? Maybe a fixed long term deal up to maybe £200-300 pcm?

I am encouraged by your responses, should I contact one or more of you directly with specifics?

Fred Bloggs

7:55 AM, 5th February 2015
About 4 years ago

Les,
Unfortunately option C no longer applies !

Les Charneca

8:02 AM, 5th February 2015
About 4 years ago

Reply to the comment left by "Melvin Edwards" at "05/02/2015 - 07:55":

Cheers Melvin. I only miss fish and chips and real ale anyway, so I would not bother going back at all and keep the cash;) But point noted. Can anybody make this option work anymore?

Fred Bloggs

8:27 AM, 5th February 2015
About 4 years ago

Reply to the comment left by "Les Charneca" at "05/02/2015 - 08:02":

If your talking about paying no CGT after being non-resident for 5 years ! the rules on this have now been changed.

Les Charneca

12:42 PM, 5th February 2015
About 4 years ago

Reply to the comment left by "Melvin Edwards" at "05/02/2015 - 08:27":

Melvin

Changed to what?

Les

Neil Patterson

13:11 PM, 5th February 2015
About 4 years ago

Reply to the comment left by "Mark Time" at "04/02/2015 - 19:10":

Hi Mark,

Please make contact with Howard's team if you need help see >> http://www.property118.com/member/?id=314

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