Petem95

So current situation - mortgage on my main residence is a 2 year fix with 18 months to run. At the end of this there will be only a small amount outstanding, £40k ish.

I want to get another property at some point, so I'll be renting out either the new one, or the current one.

The question is does it make more sense to;

1) pay off the outstanding sum on this property, then buy a new property to live in, and rent the previous? Advantages would probably be better mortgage rate, but believe I would then be liable for capital gains on the property value if I sold this after 2 years (?), and I would still pay extra stamp duty on the purchase of the new one?

2) take out another 2 year fix on the outstanding debt on my main property, and then buy the new property with a BTL mortgage and rent it out (so I would have 2 mortgages). This would be higher rate, I would still pay extra second home stamp duty, but I would avoid any capital gains if I sold my main residence?

Anyone advise the best way forward? Basically I just want to buy another property, but want to try and do this in the most tax efficient way possible.

BMWhere?

Take advantage of the low interest rates at the moment and mortgage the old property, rates are only going to go up and you can make more in savings than your mortgage will cost you!

andy97

iTrader: (1)

BTL mortgage are alot more stringent now, so no cheating the system. You would be better off renting your first house once paid off, so don't have the larger deposit and regulation of a BTL mortgage. This is all subject to having enough deposit for second home-Savings, inheritance etc.

You would be scum of the earth to some on here, whilst all you're doing is trying to improve your financial position. Ignore the the ones who are envious of your position

Petem95

Thanks both, probably makes sense to pay off the first, then buy a second to live in with a regular mortgage, and rent the first. I need to check out the capital gains situation fully here though, as I'm sure it becomes liable after a certain period.

andy97

iTrader: (1)

It does. Your primary residence will be your new home, exempt from CGT. Renting a property is usually a long term plan. You can sell your new home and move back into the rented house and live there for a period before then selling said house to side step CGT. You need to get advice from a solicitor/tax accountant for details

Puff The Magic Wagon!

iTrader: (2)

CGT is payable on any profits from the sale of a property that you own that is not your main residence. Profits are calculated after costs of purchase/sale/renovations etc are deducted from the difference in the purchase & sale price. CGT is reduced for any time you actually live in the house, proportionally and iirc there's a grace period as well. Forgetting the grace period for a moment, if you lived i the property for 10 years and rented for 5, then you would pay CGT on 1/3 of the profit at the prevailing rate.

Filski

Wife and I recently went to see a mortgage advisor about the exact same point, as we have accumulated some savings and they were just sitting doing noting in the ISA with silly rate of interest. All was well, affordability etc, until he mentioned 'cost of moving' which effectively means that you have to pay circa 9k due to the property being your second home and an increased SDLT which meant that before even thinking about deposit etc we would have to give the tax man 20k or so... which to me sounded preposterous. Thus opted for paying off the existing mortgage..

Saying that in my opinion, seeing the quantities and the speed of the new so called 'affordable' houses are built, the market is going to be oversaturated with homes that people cannot afford so perhaps the new laws that were introduced to put people off from buy to let may be relaxed in the near future...