OK - what would be better from a Tax perspective, longer term for a client looking to purchase a Buy to Let property ?
(1) Pay a deposit from personal tax free savings cash and raise buy to let mortgage on rest ?
Or
(2) Raise the deposit, as a separate interest only loan, on clients existing residential property, and fund the rest via Buy to Let mortgage ???
I would assume that (2) is more effective as then you obtain 100% mortgage interest relief against rental income, and retain tax free savings.
From an accounting perspective, does the additional borrowing HAVE to be viewed as a separate loan, or can it be rolled up into main mortgage ? Though in this instance i guess the loan becomes a little unclear from interest calculation point of view.
Although with you you are increasing the interest expense at the end of the day you are doing the BTL to make a profit, no?
Unless you can use the savings capital to create a better income than it would invested in the BTL then why not use it? Savings rates are dire at the moment!
Client has circa. £40,000 in share based ISA schemes earning on average between 5% and 8% per annum.
Client is already a HRT, and there is plenty of profit in the BTL, even with 100% funding.
The interest rate on the further advance would be fixed at 3.30% if taken out.
Although extra borrowing of £40K, the interest on the extra loan @ 3.30% or £1320pa, this can be used as a further deduction against the profits from the rental property, therefore less tax to pay going forward for my client too.
Retaining the investment of £40,000 ensures that the client benefits from circa. £2000+ tax free growth (all being well).
The Buy to Let mortgage loan is also deductable in terms of interest relief cost, so therefore can be purchase using 100% tax efficient loans !
So a WIN WIN from the tax and accounting side of things ?
Does the additional loan need to be separated from any main advance ???
