Own apartment buying house, best way to proceed tax efficiently?

S

shaking

Registered User
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We currently own an apartment valued at €450k with a mortgage of c.€110,000. Next year we are planning on buying a house and renting out the apt, currently we have €200,000 in savings. What we're trying to work out is the best way to proceed should we:

  1. clear the mortgage on the apt and have less to put towards buying a house
  2. release equity on the apt to have more cash to put to new property and have greater mortgage to offset rental income against
  3. should we sell the apt and use cash towards house purchase meaning we won't have to pay CGT on apt sale as it's currently PPR
I guess what I'm asking is what's the best way to structure it tax efficiently, can we release funds on apt and put it towards house purchase next year?

All advice greatly appreciated
 
shaking said:
clear the mortgage on the apt and have less to put towards buying a house
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You should consider keeping the €110K mortgage outstanding and going interest only on it so that you can maximise the amount of interest you can set against rental income from the apartment.

Interest only mortgage for investment property
release equity on the apt to have more cash to put to new property and have greater mortgage to offset rental income against
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You can only offset interest on the outstanding €110K against rental income. Interest on additional debt secured on the rental property but used for purposes other than purchasing/renovating it cannot be offset against rental income.
Difficult question to answer as it involves assessing your overall financial/investment situation, future predictions of rental income an capital appreciation, your attitude to risk (e.g. putting so much of your overall net worth into a single asset class/grographic region) etc. etc.
 
Thanks for the repsonse Clubman, if we increase the mortgage on the apt to say €250k can we offset the rental income against this higher amount and put the €140 towards house purchase?
 
shaking said:
Thanks for the repsonse Clubman, if we increase the mortgage on the apt to say €250k can we offset the rental income against this higher amount and put the €140 towards house purchase?
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Er - did you read my post above at all !?! The answer is no. You have €110K outstanding that was (presumably) used to purchase the apartment so only interest on this can be offset against rental income. If you release equity from the apartment then you can do whatever you like with it but you cannot offset interest on the additional amount against rental income if the money is not used to purchase/renovate the rental property.
 
ClubMan said:
You can only offset interest on the outstanding €110K against rental income. Interest on additional debt secured on the rental property but used for purposes other than purchasing/renovating it cannot be offset against rental income.
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