Author Topic: Buy outright or keep a mortgage UK  (Read 2506 times)

frugledoc

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Buy outright or keep a mortgage UK
« on: April 30, 2014, 11:39:42 AM »
Hi,

I am selling my rental property and will realise 200,000 pounds profit and a further 70,000 equity.

I am looking to buy an investment property where I have moved to.   With my equity I can afford to buy prime area flat with no mortgage. 

However,  I have a lifetime mortgage traking the base rate + 1.99 so currently 2.5% until rates go up.

I can port the mortgage.  Should I use the mortgage to obtain more leverage or just get out of the game and buy with no mortgage?

I am fully invested in non taxable UK stocks and shares accounts so I don't really have anywhere else to put the money other than property.

skunkfunk

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Re: Buy outright or keep a mortgage UK
« Reply #1 on: April 30, 2014, 11:59:00 AM »
Are there any extra costs associated with the transfer? What are taxable investment accounts like in the UK?

I have no idea how to answer your question, but I am curious how things work in the UK.

frugledoc

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Re: Buy outright or keep a mortgage UK
« Reply #2 on: April 30, 2014, 12:29:35 PM »
Transfering the mortgage to another property is free.

We pay a purchase tax/stamp duty when purchasing property in the uk
1% 125 - 250k
3% 250 - 500k
4% 500 k +

I could invest in my wife's non taxable stocks and shares account as she is a non tax payer and I am a higher rate.

Higher rate tax is 40% on all income above 40k in the UK.  However,  there is an effective tax rate of 62% on earnings above 100k up to 121k so there is an urgent priority to organise income so it stays below this level.


skunkfunk

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Re: Buy outright or keep a mortgage UK
« Reply #3 on: April 30, 2014, 12:33:44 PM »
Transfering the mortgage to another property is free.

We pay a purchase tax/stamp duty when purchasing property in the uk
1% 125 - 250k
3% 250 - 500k
4% 500 k +

I could invest in my wife's non taxable stocks and shares account as she is a non tax payer and I am a higher rate.

Higher rate tax is 40% on all income above 40k in the UK.  However,  there is an effective tax rate of 62% on earnings above 100k up to 121k so there is an urgent priority to organise income so it stays below this level.

Wow. And I thought the rich people here in the US complained a lot about taxes.

Do your wife's tax-free accounts look attractive?

frugledoc

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Re: Buy outright or keep a mortgage UK
« Reply #4 on: April 30, 2014, 02:03:27 PM »
We do pay a lot of tax but free health care and in Scotland free university if you are scottish (or european excluding england).

Tax free accounts have just been upped to 15,000 per person per year which can be held in cash or stocks and shares - no capital gains or added tax on dividend.

Pensions you are are allowed 40,000 per person per year but there is a life time allowance of 1.25 million which if breached gets taxed at 55%

All of our tax free amounts are fully utilised.

We also have premium bonds which are a form of government bond and are run sort of like a lottery but pay around 1.5% tax free per year.  You can max these out to 30k per person but this is being increased to 50k over the next 2 years.



daverobev

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Re: Buy outright or keep a mortgage UK
« Reply #5 on: April 30, 2014, 02:04:28 PM »
Hi,

I am selling my rental property and will realise 200,000 pounds profit and a further 70,000 equity.

I am looking to buy an investment property where I have moved to.   With my equity I can afford to buy prime area flat with no mortgage. 

However,  I have a lifetime mortgage traking the base rate + 1.99 so currently 2.5% until rates go up.

I can port the mortgage.  Should I use the mortgage to obtain more leverage or just get out of the game and buy with no mortgage?

I am fully invested in non taxable UK stocks and shares accounts so I don't really have anywhere else to put the money other than property.

Port the mortgage, invest the rest, perhaps in another good rental. Obviously you need to make sure you get good ones.

For BTL, the rates I see are more like 5%, 7%. Base + 2 is great.

Now, I do believe there is likely to be a correction in the UK, but who knows. Heh, maybe take a punt in the US - port the mortgage, take some of the funds and buy a couple of much better, %age wise, places over Stateside.. It's fun (promise!).

Why do you care if you're paying 62% on more money? It's still more! Yeah you only get to keep 38% of it, but I'd rather have 38% of 20k than 100% of nothing!

skunkfunk

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Re: Buy outright or keep a mortgage UK
« Reply #6 on: April 30, 2014, 02:10:22 PM »

We also have premium bonds which are a form of government bond and are run sort of like a lottery but pay around 1.5% tax free per year.  You can max these out to 30k per person but this is being increased to 50k over the next 2 years.

That seems a bit crappy. Is 1.5% the real rate of return if you hold sufficient lottery bonds? I don't think there's a very good chance that would beat inflation.

frugledoc

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Re: Buy outright or keep a mortgage UK
« Reply #7 on: April 30, 2014, 03:10:59 PM »
@ daverobev - I care about the 62% tax rate because I can pay zero - 20% tax if I manage my income efficiently and use my spouses tax band as she is a non earner.  The savings for doing very little are very large

@skunkfunk  - Premium bonds I use just as a cash holding.  I don't market time in my non taxable stocks and shares but will transfer all of the bond money into stocks and shares in a taxable account if we had a significant market crash.

At the moment I only have total 10% of my wealth in cash/low risk bonds and the rest is all in equities, public sector pension and property.