Singing Pig

Traceyann:

I never knew that. That was going to be my strategy  for reducing my CGT on my properties. Is there no way to get round this or is it just a case of biting the bullet.

If you mean mortgages not being relevant for CGT, then there is no way round it.

MEWing to buy other BTLs works well in a rising market, but is a disaster in a falling one. If you need to raise capital or reduce expenditure by selling, there may not be enough net sale proceeds (after redeeming the mortgages) to pay the CGT. Then the dominoes start toppling over. 

Good advice from Geroge as normal, just to pick up on one point however, if you bought at (say) £50,000 and re-mortgage from £40,000 to £60,000 spending the £20,000 on refurbing the property it may well be the case that SOME of these costs will in fact be deemed "repairs" and not "capital improvments" for CGT, and therefore the cost against which you can offset mortgage interest may not be £50k+£20k=£70k but perhaps only for example £50+£8k (capital) and £12k repairs depending on what has occurred. The repairs would be deducted from your annual rental income figures. Examples of this are things such as replacing a kitchen. Given the property presumably (!) already had a kitchen this probably just a repair (albeit a big ticket one), not a capital improvement. It may be capital however if you for example extent the property and put a new kitchen in the extension or have just the property and are "doing it up" before the rental period commences. There could also be some capital elements to a repair, eg in replacing a bathroom if there was no power shower and you put one in, this is generally seen as capital and not a revenue expense although the cost of the rest of the bathroom (replacing one toilet with another, one tiled wall with another etc etc) would be a repair.

As ever with this sort of thing, be careful, it gets complex.
 

Regards,
 

silvercar:

You can only claim the mortgage interest as an expense of the lettings upto the value of the property when you first let it. So if this extra borrowing takes the mortgage above the property value when first let, you cannot claim the interest as an expense.

 Of course, if you use the money to invest in more property then the mortgage interest will be a legitimate expense once more as there is another property in the equation.

to clarify this point does this mean the value prior to first let or the original price the property was bought for

why im asking is we all buy bmv so if the value prior to first let is the magic figure it would be worth getting a good valuation prior to first let??

if its the value do they determine the value as the purchase price or omv

thanks in advance

carl 

Carl,

The point above about valuation when the property is first let is to do with when a property may have been used as something else prior to letting, such as your home. If you are buying a property to let it out, the key value for mortgage interest is generally what you actually paid for it although inevitbably there are complications that your accountant (assuming they are competent in this area) will guide you through.

Regards,
 

Yes, for a BTL property it will normally be the purchase price (assuming not bought from a family member etc).

The only time it will be different, is when there is a significant time lag between purchase date and start of the first tenancy.

What if the property you purchased was a shell.  No heating, no kitchen, no bathroom, not lettable.

Surely you could claim back the amount used to make it lettable?

Same must go for a house with a minging bathroom, minging kitchen and 1 oil filled electric radiator.  Surely the cost of a central heating system and new kitchen and bathroom could be claimed back.

And what if the garden was overgroen, weeds five feet tall. Surely you could claim back the money spent on a gardening company just to bring it in to an acceptable condition such as turfing over?

Seabro, such costs would either be capital or revenue expenses depending on the circumstances and the rules surrounding replacement/renewal. Generally speaking if the property cannot be let at the point of purchase most of the costs (but almost certainly not all) would be added to the capital value of the property, increasing the capital value allowed for the deduction for loan interest. However the VALUATION of the property after your renovations are complete is not going to be relevant. I know if sounds biased but this is a complex area so you should seek proper professional advice. There are many scenarios which although may look very similar to the one you are in is different to the one that is posted about due to assumptions made or seemingly irrelevant facts stated in the original post which can change the nature of the taxes applied. For example a renovation before letting may be treated differently to one made after letting has commenced.

Sorry if that makes is sound confusing, but it can be!

Regards,
 

What if the property you purchased was a shell.  No heating, no kitchen, no bathroom, not lettable.

Surely you could claim back the amount used to make it lettable?

Same must go for a house with a minging bathroom, minging kitchen and 1 oil filled electric radiator.  Surely the cost of a central heating system and new kitchen and bathroom could be claimed back.

And what if the garden was overgroen, weeds five feet tall. Surely you could claim back the money spent on a gardening company just to bring it in to an acceptable condition such as turfing over?  ""

seabro - its all claimable  - but at separate times

 repairs/replacements are claimable each year on your tax  return,

Capital improvements are claimable against CGT when you sell

this means you need an excellent long-term record keeping strategy !

you need an accountant .......