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Tax Insider Tip: Equity Release

3rd Nov 2014
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Income tax relief is available on a loan taken out to release capital in a rented property that is subsequently used to purchase another property or even to reduce the capital outstanding on the main residence. The actual reason for the mortgage is irrelevant.

The key criterion is that the total amount of capital released must not exceed the market value of the property when originally brought into the letting business. If the property had originally been bought for letting then this amount would be the purchase price; otherwise use the market value at the date of transfer.

Example:
Anne wishes to raise £150,000 via a mortgage on two Buy To Let properties that were purchased with cash some years ago. The purchase price of the properties was £125,000 and they were let out immediately on acquisition. The mortgage monies will be used as capital to purchase a holiday cottage for personal use.

The maximum amount of interest allowable will be the proportion relating to the amount paid for the properties originally, i.e. £125,000.
 
There is no need to include the cottage in the portfolio for tax relief to be allowed. It can be kept for private use, but interest on £25,000 (the balance of the £150,000 mortgage) will be disallowed.

 

This is a sample tip taken from our 136 page guide:
101 Ultimate Tax Strategies Revealed.

Click here to receive a free copy of this tax saving guide today!

 
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