High interest rate better for a Buy To Let?

T

TheJackal

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I'm looking for a sanity check here as this sounds odd:

100% of mortgage interest for a Buy To Let property is now allowable as a deduction against rental income.

So this incentivses you to take out a BTL mortgage with as high interest rate as you can find to get a larger deduction against your tax bill each year.

This assumes you rent the property for the duration of the mortgage, so you do not get landed with that higher rate with no deduction down the line.
 
No, no, no...

You are not reducing your tax bill, you pay less tax because you have made a smaller profit because you are paying more interest. It is not the same as reducing your tax bill through pension contributions where you get the value in your pension
 
Jackal

If you have Buy to Let mortgage at say 3% and a home loan at 3%, then you should pay off the home loan first, as you get no tax relief on that.

But, you should not spend money just so that you get tax relief on it, if you would not otherwise be spending it.

If you don't want to pay tax, then give your tenants a big reduction in rent and you will all benefit. :)

Brendan
 
Yes, to further Brendan's point, if you have PPR and BTL debt, you should double the PPR interest rate and compare to the BTL to determine which is the most expensive and which should be paid off first.

For example, a 2.9% PPR is like a 5.8% BTL. So if your BTL is less than 5.8%, then it makes sense to prioritize your PPR debt.

However, if you happen to have a 1.95% PPR. a BTL above 3.9% is costing you more and should be paid down first.

All that said, make sure it is profitable in the first place. There are so many instances on AAM where people do not understand how carrying additional PPR debt because you have a BTL can actually cost you money. Total equity in both properties and interest rates are key to determining if you should have a BTL at all
 
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