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I've always been a little confused when reading about BTL'ers who buy a property for say £80K, a year later remortgage it to £100K and pocket the £20K tax free.

Would this not be classed as a captial gain or is it simply a way of ensuring your own financial demise?

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I've always been a little confused when reading about BTL'ers who buy a property for say £80K, a year later remortgage it to £100K and pocket the £20K tax free.

Would this not be classed as a captial gain or is it simply a way of ensuring your own financial demise?

My understanding is that you can withdraw the equity tax free, but you can only claim mortgage interest relief on borrowed money up to 100% of the purchase price. (ie you can buy for 85k (15% deposit) wait for price to rise and borrow 170k when price rises to 200k. But you can only claim interest relief on the original 85k plus a further 15k to make a total of 100k + purchase price.

The problem comes if prices fall back to 150k and you owe more than you can sell for AND you still need to pay CGT on 50k (less allowances and taper relief)

FF

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I've always been a little confused when reading about BTL'ers who buy a property for say £80K, a year later remortgage it to £100K and pocket the £20K tax free.

Would this not be classed as a captial gain or is it simply a way of ensuring your own financial demise?

You've not pocketed anything. You've borrowed some money, using one of your assets as security, but your total assets haven't changed, you've just moved stuff around the balance sheet a bit. There's no reason for the taxman to get interested.

Your capital gain on the property is only taxable when it's actually realised, i.e. when the property is sold.

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I've always been a little confused when reading about BTL'ers who buy a property for say £80K, a year later remortgage it to £100K and pocket the £20K tax free.

Would this not be classed as a captial gain or is it simply a way of ensuring your own financial demise?

It is not a capital gain, it is a debt.

IF you actually sell for £100k THEN you trigger a potential capital gains tax liability.

If you like, it is a giant piggy bank... except one that needs to be repaid at some point (in a similar way to owner-occupiers taking MEW).

And as Father Fred points out, one that leaves you highly exposed should property prices fall (perhaps one of the reasons BTLs are so vociferous that there will not be any price falls and if there are they will not sell but will instead "hold for the long term").

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I've always been a little confused when reading about BTL'ers who buy a property for say £80K, a year later remortgage it to £100K and pocket the £20K tax free.

Would this not be classed as a captial gain or is it simply a way of ensuring your own financial demise?

If it were possible to class it as capital gains, I and every other landlord would pull out ther annual CGT allowance every year. :D

My understanding is that you can withdraw the equity tax free, but you can only claim mortgage interest relief on borrowed money up to 100% of the purchase price.  (ie you can buy for 85k (15% deposit)  wait for price to rise and borrow 170k when price rises to 200k.  But you can only claim interest relief on the original 85k plus a further 15k to make a total of 100k + purchase price.

The problem comes if prices fall back to 150k and you owe more than you can sell for AND you still need to pay CGT on 50k (less allowances and taper relief)

FF

You don't pay tax because as others have stated, it's not income or realised gains, its a loan.

But I wanted to point out that the cost of purchase plus all other costs of purchase, stamp duty, solicitors fees, other fees etc are all allowed to be borrowed for.

So the best tax saving strategy is to borrow the deposit and costs using an existing property as security and the remainder by using the purchase as security, allowing the entire purchase to be funded immediately on borrowed money.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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