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At the link a pdf with a plain English (hopefully) discussion of the fact that if you continually use mortgage equity withdrawal to extract the capital gain from a buy-to-let, the answer to the question in the thread title is that in the end HMRC own your buy-to-let, and if you are really incautious you may create a situation where they end up having a claim on your other assets too.

Who owns your buy-to-let?

Please feel free to tweet, e-mail or print it off and leave it surreptitiously in the path of anyone who is using mortgage equity withdrawal to treat a buy-to-let as a piggy bank. I've never dealt with a mortgage broker, but neither have I ever heard of one warning about the interaction between mortgage equity withdrawal and Capital Gains Tax.

If you want to improve it or change it PM me and I'll give you a link to the same document as .rtf or .doc according to your preference.

Enjoy.

Edited by bland unsight

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Yet another barrier to liquidity ever coming back to the housing market.

I really think that this is understood by TPTB, and they really may jack rates on BTL mortgages, just to break the levee.

https://www.youtube.com/watch?v=9NaQZojWi6U

Gordon the Moron gave us this buy-to-let f**k up. The Conservatives can either clean up his mess or try to live with it. The fact you have the Bank of England calling the sector a financial stability risk means the former possibility is not as much of a long shot today as it appeared to be a year ago.

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What about the deposit you paid on the 1st house? Where's that gone?

I don't want to keep on banging on about this, but if I bought £12,500 pounds worth of shares and only got back £10,176... I'd be a bit miffed.

In your calculations it looks like you have gained £10,176 but you haven't, you have lost £2324 out of your original deposit.

Sorry about that!

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What about the deposit you paid on the 1st house? Where's that gone?

I don't want to keep on banging on about this, but if I bought £12,500 pounds worth of shares and only got back £10,176... I'd be a bit miffed.

In your calculations it looks like you have gained £10,176 but you haven't, you have lost £2324 out of your original deposit.

Sorry about that!

It's perfectly possible that I've made an error, I've made them before, but I don't understand your question. Your deposit was the money you handed over essentially to obtain your initial share of the equity. The money you handed over went to the person you bought the house from.

You have gained money, and as you went along you MEWed it out and spent it, on holidays, or possibly as a deposit for another investment property. Your gain is real, in the real vs imaginary sense, (although it's rather crucial to note that it's your nominal gain that gets taxed now that indexation is gone). However the fact that you have to pay some tax on that gain is also a real thing, (again in the real vs imaginary sense).

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Your 1st purchase you had to find the 25% deposit.... You saved it. It's yours.

After all the BTL stuff and tax you only get £10,176 back! huh. Where's my £2324 gone?

Now you might be thinking so what? Well you need your deposit to put it back against the house that it was originally mewed from. You need it to pay the CGT on that 'mewed' house.

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It's a well written, paper and I am grateful for you taking the time to write it. (I was wondering what happened to indexation allowance!). However, I think a more honest appraisal would have included the impact of CGT on a range of LTV / HPI scenarios.

The 85% LTV example presented isn't actually an 85% LTV example. It is a 93.5% LTV example. We can have a discussion about valuations on mortgage approvals but that is a separate topic and it doesn't help conflating these two points.

Suggestions:

+ include a table (similar to the matrix I posted on the other thread) in the 'results' bit showing the impact for a range of HPI / LTV variations.

+ include a section considering the dynamics of the CGT liability in HPC (asked by Exiled Canadian on the previous thread and answered incorrectly by myself). This is by far the most interesting part of this topic.

The other question I would ask is - why now? CGT has been like this for years. How has the budget changed things? I'm not sure it has. I would imagine small scale BTL had planned to move into their properties for the minimum time period possible and stagger their sales to minimise CGT. I suppose the budget throws a 'spanner in the works' for this population because in 3 years time their BTL portfolio will become a cash drain rather than a cow. For the big boys however, nothing has changed.

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ISuggestions:

+ include a table (similar to the matrix I posted on the other thread) in the 'results' bit showing the impact for a range of HPI / LTV variations.

+ include a section considering the dynamics of the CGT liability in HPC (asked by Exiled Canadian on the previous thread and answered incorrectly by myself). This is by far the most interesting part of this topic.

Yeah, I'm going to assume this is well meant, but, as per the OP:

If you want to improve it or change it PM me and I'll give you a link to the same document as .rtf or .doc according to your preference.

You're welcome to produce variants if you want, and I'm interested in genuine mistakes being picked up, but you're missing the point on the 85% vs 93.5%, which is that having at mortgage that was 75% LTV when it was written does not mean that when you come to sell the mortgage will only account for 75% of the proceeds of the disposal.

To be honest I don't actually understand the criticism you are making in this regard. My worst possible case just involves a valuation being made that is 10% off what could be actually be obtained when a sale was made and a sold price determined in the market.

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In most cases hasn't the equity withdrawn gone on building the empire?

This is making my brain hurt :wacko: ... Would this assist or worsen the the tax liability?

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...The 85% LTV example presented isn't actually an 85% LTV example. It is a 93.5% LTV example. We can have a discussion about valuations on mortgage approvals but that is a separate topic and it doesn't help conflating these two points...

As far as the BTLer and their lender are concerned it's an 85% LTV right up until they sell and the market demonstrates to them the actual LTV.

...I would imagine small scale BTL had planned to move into their properties for the minimum time period possible and stagger their sales to minimise CGT...

Mortgage fraud? Not saying that they don't do this but isn't there a clause in most BTL mortgages that precludes occupation of the property by the mortgagor? (h/t Digsby)

Edited by Neverwhere

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Yeah, I'm going to assume this is well meant, but, as per the OP:

You're welcome to produce variants if you want, and I'm interested in genuine mistakes being picked up, but you're missing the point on the 85% vs 93.5%, which is that having at mortgage that was 75% LTV when it was written does not mean that when you come to sell the mortgage will only account for 75% of the proceeds of the disposal.

To be honest I don't actually understand the criticism you are making in this regard. My worst possible case just involves a valuation being made that is 10% off what could be actually be obtained when a sale was made and a sold price determined in the market.

Yeah, it was well meant, I've learnt allot from your posts.

I'm just arguing that the HPC and mortgage valuations be treated differently. With the mortgage valuation 'error' example you might as well be saying you re-mortgaged at 85% LTV and there was a 10% crash. For the purpose of working this through, I find it easier to accept mortgage valuations as being correct (which is debatable probably) and do the modeling of CGT and then imagine what happens in various crash situations.

I'm genuinely interested in the crash bit because I can't get my head round it. Exiled Canadian asked about it and I think I wrote something along the lines of:

'Your receipts will fall by X * Sales price but your CGT will fall by X * 28%'; so you are worse off.'

But I played around with OpenOffice (piece of shit) yesterday and it spat out something different. I guess CGT post crash is actually [HP1 * (1-x) - HP0] * 28% vs [HP1 - HP0]*0.28% pre crash.

I will have a look at the weekend when I have some time.

Edited by growlers

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Your not allowing for the outstanding loan to remain the same. As your house price shrinks your LTV goes up!

If you have a loan @ 75% LTV on a £100,000 house you have a loan of £75,000

If the value then drops by £20,000 you have a loan of £75,000 against a house worth £80,000 Or 93.75 LTV.

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I'm genuinely interested in the crash bit because I can't get my head round it.

My instinct is that it just as shitty in a crash, because it's only ever a problem if you are carrying a lot of leverage, e.g. 85% LTV. In that case if you are down 15% all your equity is gone, so your sales proceeds are going to be zero after the bank takes the money it needs to clear the mortgage. Now, if you have any gain above £11,100 for a single person and £22,000 for a couple you're still going to be paying CGT.

As far as the Revenue are concerned the fact that you already spent the all the gain is irrelevant.

In a crash, leverage is a bitch anyway, f**king around spending the money you need to pay the CGT just compounds the problem.

The focus is on reminding lurkers that the Revenue wants a piece of that gain, and they are going to get it.

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The focus is on reminding lurkers that the Revenue wants a piece of that gain, and they are going to get it.

Btler with multiple properties has only one vote. Hard-working family has two votes. Who is the government going to shaft?

Edited by Eddie_George

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Btler with multiple properties has only one vote. Hard-working family has two votes. Who is the government going to shaft?

Absolutely.

If you shaft the buy-to-let investor one end, via their fundamental "dedicated property portal", CGT receipts come out the other end. If you don't shaft them you get massive financially instability risk and a weakening Conservative vote in the areas worst affected.

It was never a question of whether or not they would be shafted, it was only ever a question of when and how.

It would still be very helpful, to say the least, to have the Bank of England chipping in as the private banks' regulator and using macro-prudential tools ameliorate the worst effects of the present low policy rate, by jacking mortgage rates available to buy-to-let investors up and away from the rates payable by owner-occupiers.

That possibility has now been very well sign-posted for knocking on a year and Osborne has now shown some leg on the issue, so that could be just months away.

Their has never been any evidence of the Conservatives encouraging this interest-only (ersatz) mortgage financed buy-to-let investment. Since the 2012 budget there has been a trail of breadcrumbs pointing towards the possibility that they are actually gunning to drive the most aggressive leveraged investors on to the rocks. As of the 2015 Summer Budget the evidence even supports the suggestion that they are going to end interest-only (ersatz) mortgage financed buy-to-let investment full stop.

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