Switching Mortgage

[Novic]

I own two properties - my PPR has a mortgage - whilst the other an inherited property has no mortgage. I am considering changing my PPR to the inherited property and switching the mortgage over - the reason being that the inherited property is more valuable and I would have some equity in the property should I need to remortgage at some point in the future. Also I have been offered a better interest rate. Can you advise the following.
a) Will my mortgage relief transfer over to the inherited property.
b) If I pay off the full mortgage on the first property and rent it out - can I offset the rental income against the interest paid on the mortgage for the 2nd property.
c) Finally, it would be my intention long term to sell both properties and buy a new PPR with the proceeds of both properties. If the new PPR costs less than what I make on the sale of the two house - will I be subject to Capital Gains on the surplus?

 

[ClubMan]

I own two properties - my PPR has a mortgage - whilst the other an inherited property has no mortgage. I am considering changing my PPR to the inherited property and switching the mortgage over - the reason being that the inherited property is more valuable and I would have some equity in the property should I need to remortgage at some point in the future. Also I have been offered a better interest rate. Can you advise the following.
a) Will my mortgage relief transfer over to the inherited property.

No - because you already own this property outright so any loan secured against it is not being used to purchase it.

b) If I pay off the full mortgage on the first property and rent it out - can I offset the rental income against the interest paid on the mortgage for the 2nd property.

No - the only interest that you can set against rental income is the interest on any loan(s) outstanding that were used to purchase the first property if/when you rent that out. If you clear the mortgage on the first property (current PPR) and then rent it out then there is no interest to set against rental income.

c) Finally, it would be my intention long term to sell both properties and buy a new PPR with the proceeds of both properties. If the new PPR costs less than what I make on the sale of the two house - will I be subject to Capital Gains on the surplus?

If you dispose of the first PPR after 12 months after vacating it as your PPR then some portion of any resale gain arising on disposal will be assessable for CGT. Not sure about the inherited property - depends on when you acquired it and what you did with it since acquiring it I think. The cost of any new PPR is certainly irrelevant since there is no "rollover" relief when buying property - i.e. CGT issues arise in relation to individual assets and not sequential transactions.

You should probably get independent, professional tax advice to be honest.

 

[Novic]

The cost of any new PPR is certainly irrelevant since there is no "rollover" relief when buying property - i.e. CGT issues arise in relation to individual assets and not sequential transactions.

I understood that if you sold a PPR in order to purchase a new PPR than CGT would not be applicable. The fact that in order to purchase the new PPR involves having to sell the 2 properties, surely this rule still applies?

 

[ClubMan]

I understood that if you sold a PPR in order to purchase a new PPR than CGT would not be applicable.

If you sell a property that was always your PPR and is disposed of within 12 months of vacating it then any gain is exempt from CGT regardless of what you do with the money. However the scenarios that you mention don't necessarily fall into this category - e.g. if you don't dispose of the first (current PPR) property within 12 months of vacating it and moving into the second (inherited) property then some portion of any eventual resale gain will be assessable for CGT. And I'm not sure if there could be some CGT chargeable on the eventual sale of the inherited house even if you move into it as your PPR. It may depend on when you inherited it and what it has been used for in the meantime. You should get professional advice on at least this but probably the overall tax situation.

The fact that in order to purchase the new PPR involves having to sell the 2 properties, surely this rule still applies?

I don't understand - the original query is about two and not three properties.

Update: sorry - I just re-read the last line and see that the eventual plan would be to sell both and buy a new PPR. This is still irrelevant to the CGT issue. If any CGT liability arises on either or both of the properties then these are dealt with in isolation and there is no exemption/relief for rolling the proceeds into a new PPR.