Sweat Assets?

by Readers Question

15:26 PM, 7th March 2018
About 10 months ago

Sweat Assets?

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Sweat Assets?

My question is would it be better to release equity from your rental portfolio whenever the opportunity may arise or to leave it where it is?

If it is the latter then I guess there is a real risk that should the market crash, then there goes your equity as well. If I release equity then I can decide to invest at some point in the future or just buy a car (only joking about the car!)

Presumably you would not be hit with CGT as you would still own the property, no income tax payable and high borrowing would maybe reduce your inheritance tax when the inevitable happens?!

I have heard of the ‘Tender Trap’ and wonder whether this is a consideration also?

Many thanks

Ronny



Comments

Neil Patterson

15:30 PM, 7th March 2018
About 10 months ago

Hi Ronny,

Pre-Section 24 mortgage interest relief restrictions it was cost effective/tax efficient to release equity up to the original base cost plus capital expenditure.

However, assuming the properties are in your private name and not a Ltd co. then the tax could liability could be prohibitive if you are a high rate tax payer.

Please see our Tax Planning page >> https://www.property118.com/tax/

Ian Narbeth

10:45 AM, 8th March 2018
About 9 months ago

Even when high gearing was advantageous, you still need to watch out for day when you need to sell. If you have re-mortgaged one or more times so that you have none or little of your own funds invested, your ROI is superb. However, you could find that after sale expenses you do not have enough equity to pay the CGT bill.

Puzzler

8:24 AM, 10th March 2018
About 9 months ago

or to pay the mortgage if you are in negative equity...

H B

9:42 AM, 11th March 2018
About 9 months ago

Surely this question just depends on what you need the money for and whether it increases your leverage to the extent that you fail underwriting under s24.

Darren Peters

16:05 PM, 11th March 2018
About 9 months ago

S24 legislation aside, no one answer suits all circumstances. Pulling more money out allows you to grow the portfolio faster but at the risk of interest rate and other shocks wiping out the leaner profit. Plus, as mentioned, the CGT trap where the eventual CGT due could be more than you get selling the properties. Both of the above, properly understood, can be accepted as risks. Some people plan to lower the risk with age Eg Fast, high risk growth phase to age 40-50 then conservative with no more remortgaging from then on.

Being a bit more conservative gives more options if shocks come along. At the moment, I'm planning as if more shocks will come to BTL. Put logic or what "ought to be" to one side and think like politicians. Most people under 35 rent, most people under 35 will probably vote Corbyn, the next election battleground could well be which party cares about Generation Rent most as evidenced by bashing the evil landlords.


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