If you need a holiday or want to treat yourself to a new car, try thinking about raising the cash out of a buy to let, because this landlord money saving tip bizarrely involves spending as well.
If you have a buy to let home with a large share of equity – value in the house that is not mortgaged – then this landlord money saving tip may well work for you.
The aim is to release some cash that you can spend on whatever you like without paying tax.
Take this example of a landlord who bought an average priced home worth £165,000 with a low mortgage of £60,000 – with the rest of the money coming in cash from savings.
Now, you need some of that cash back to spend, but the problem is if you borrow against a buy to let, the interest on the loan cannot be set off against the business.
Well, many landlords will be glad to know that’s only half right.
This landlord money saving tip shows you how to draw cash out of your property business without paying tax and by making the business foot the interest.
Say you have paid £165,000 for a buy to let – £80,000 in cash and £85,000 on a mortgage. You would like £30,000 for a car and a holiday.
Tax rules say you can withdraw your investment from the buy to let – and the property business can fund the finance by paying the interest.
Since you have already paid tax on the cash you used for the investment, no more is due.
This is how to do it:
Take out an interest-only loan on the buy to let for £115,000 – which is just under 70% loan to value, so plenty of competitive fixed rates should be available.
Pocket the £30,000 with no tax and put the mortgage interest payments against rental profits to reduce the tax you pay.
You still have £55,000 equity that you can withdraw as when mortgage loan-to-values and house prices go up.