Could I be hit with a big property tax bill???

Could I be hit with a big property tax bill???

10:15 AM, 14th April 2015, About 7 years ago 19

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I am planning to buy a property at auction and am lucky enough to have £350K liquid cash to do this. Could I be hit with a big property tax bill?

My accountant tells me that if I remortgage after buying the property at auction and release £262,500 back to me (75% LTV), I will not be entiteled to any tax relief on the loan against the rental income from this property I will have bought. Surely he has gone bananas?

Appreciate any advice on this please



Mark Alexander - Founder of Property118 View Profile

10:19 AM, 14th April 2015, About 7 years ago

Hi Joel

Quite frankly, your accountant is talking out of his backside, you need to find another accountant! Here's a link to the member profile of mine which contains a contact form >>>

Tax rules allow you to claim interest as an expense up to 100% of purchase price regardless of the purpose of the loan. If you borrow more than that you can't have tax relief on that element of the mortgage interest unless you use the money for related property business purposes.

One thing you should watch out for is that several lenders refuse to provide mortgages within 6 months of ownership.

Shakeel Ahmad

12:20 PM, 14th April 2015, About 7 years ago

Mark has answered the tax issue.

I would however like to advise you that the Auction property prices are in my opinion excessive. Once you add auction fee, vendors selling fee, solicitors fee etc. The property will be worth less than open market value of similar properties in the area & in some cases in the same block

The risk of not knowing what dark secret the property may carry in terms of works etc and in the case of a short leases what kind of nasty/unpleasant Freeholder you may be dealing with.

The price range that you are targeting is a very large market in London and if you want a property with good capital return you need to be thinking of buying auction properties that are £500k etc where there is very little competition.

Good luck

Joel Hearne

13:11 PM, 14th April 2015, About 7 years ago

Phew that's a relief, it got me worried though.Thanks for the info Mark

Joel Hearne

13:20 PM, 14th April 2015, About 7 years ago

Reply to the comment left by "shakeel ahmad" at "14/04/2015 - 12:20":

I agree with you that they are excessive but to be honest I just like the fact that when the hammer goes down its yours. I have had bad luck through agents where vendors want more or change their mind, this can be costly too. But I totally agree with what you say in that you can be stuck with the unknown history of a property without getting the discount you would expect from an auction.

Many thanks

patrick maher

13:54 PM, 14th April 2015, About 7 years ago

Am I missing something here? Isn't the point that Joel is paying cash and subsequently raising finance on the property meaning that the mortgage is not to finance the purchase or to pay off another loan used to purchase the property?

Mark Alexander - Founder of Property118 View Profile

14:03 PM, 14th April 2015, About 7 years ago

Reply to the comment left by "patrick maher" at "14/04/2015 - 13:54":

It makes no difference what the purpose of the loan is.

Joel has a right to claim tax relief on borrowing money for any purpose providing the amount he borrows does not exceed the amount of money that he has invested into the business from his own funds.

The would also apply to any type of borrowing, it does not even have to be against the subject property. Gor example, if he were to subsequently borrow the amount he had invested into the property via credit cards, unsecured loans, Wonga and a mortgage on his home then he would still be able to offset any interest on those loans against his rental income.

This is a classic example of why landlords should employ a professional tax adviser. A good one will save you a lot more tax than he charges in fees. I pay £1,000's every year to my accountant and I don't grudge a penny of it because he saves me a lot more than he charges me.

Shakeel Ahmad

18:42 PM, 14th April 2015, About 7 years ago

Joel: I feel your pain.
I just thought away from the tax issue perhaps it was important to bring to light the expectations of acquiring a property at the Auction.

Paying a higher price at the auction may have a longer pay back period, in the long run i.e. waiting for the prices to increase with the passage of time. In the end it will depend on your business model.

I am a firm believer that your profit is in the price you pay to acquire a property & not the price that you sell at.


23:34 PM, 14th April 2015, About 7 years ago

I have bought 90% of my portfolio at auction, and I have always got a great deal.

Joel, if this is your first time make sure the properties you are interested in are vetted by a solicitor who can read through thr legal pack.
Make sure you actually visit the property. Make sure you check what properties in the area, sell and rent for.
Why put ALL your funds into the purchase? (there might be refurb costs). Why not use on the Mark's brokers on this sight to advise you into a mortgage or bridging loan (all fess and interest are tax deductible).
Joel don't get carried away at the auction bidding, be prepared to walk away, there's plenty out there.
IF a property doesn't reach it's reserve price then that's great as you can after the auction negotiate a better price.
Kevin - AA Props Wales


23:36 PM, 14th April 2015, About 7 years ago

Please excuse my typos above. Been a hard day as a Landlord!

Shakeel Ahmad

8:32 AM, 15th April 2015, About 7 years ago

Sound advise AA.

Perhaps the auction properties in Wales have a different component.

I was not suggesting to not to buy from the auction. My point was to not get carried away at the auctions thinking that buying in auction you will always get a bargain.

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