From: Owen .
I just had an idea.
Say I own my PPOR (#1) freehold and want to buy another one to live in (#2) and turn #1 into an IP. If I borrow against #1 to buy #2 then the interest on the loan is NOT claimable because the use of the money is for my PPOR, not investment. So I end up with a huge personal mortgage and an income producing, tax paying IP.
If I do some dodgy "buy #2 in a trust and rent back and live in it" type deal or "trust buys #1 and I rent it" type deal then there are all kinds of arms length considerations and it just becomes a hassle.
But what if I just sell #1 to my trust for market value, rent it to someone else and go and buy #2 with the cash and live in it as my PPOR?
I would get #1 valued, sell it to the trust for that value and pay the stamp duty. The trust has to get a loan to pay for it but as it is an IP all the costs and interest are deductible as a standard IP. It just happens to have been bought from me. Personally, I get a wad of cash and go and buy #2 and live in it. I either have a small mortgage or none at all depending on the numbers.
I could buy #2 first as I would have a guaranteed sale for #1 so I could manipulate that. I can ensure the valuation of #1 is appropriate for the deal. I can rent for a bit until my dream house comes on the market at the right price. Most importantly I would get a claimable mortgage for #1 which is now an IP. Obviously, it depends on the usual qualification needed to get the mortgage but in this case projected rental income can be factored in whereas if it was a personal mortgage for my PPOR, it wouldn't be.
The only cost would be the stamp duty but the benefit would be a new PPOR with little or no mortgage.
Would this be allowed?
Owen
"Gambling promises the poor what property performs for the rich – something for nothing"
I just had an idea.
Say I own my PPOR (#1) freehold and want to buy another one to live in (#2) and turn #1 into an IP. If I borrow against #1 to buy #2 then the interest on the loan is NOT claimable because the use of the money is for my PPOR, not investment. So I end up with a huge personal mortgage and an income producing, tax paying IP.
If I do some dodgy "buy #2 in a trust and rent back and live in it" type deal or "trust buys #1 and I rent it" type deal then there are all kinds of arms length considerations and it just becomes a hassle.
But what if I just sell #1 to my trust for market value, rent it to someone else and go and buy #2 with the cash and live in it as my PPOR?
I would get #1 valued, sell it to the trust for that value and pay the stamp duty. The trust has to get a loan to pay for it but as it is an IP all the costs and interest are deductible as a standard IP. It just happens to have been bought from me. Personally, I get a wad of cash and go and buy #2 and live in it. I either have a small mortgage or none at all depending on the numbers.
I could buy #2 first as I would have a guaranteed sale for #1 so I could manipulate that. I can ensure the valuation of #1 is appropriate for the deal. I can rent for a bit until my dream house comes on the market at the right price. Most importantly I would get a claimable mortgage for #1 which is now an IP. Obviously, it depends on the usual qualification needed to get the mortgage but in this case projected rental income can be factored in whereas if it was a personal mortgage for my PPOR, it wouldn't be.
The only cost would be the stamp duty but the benefit would be a new PPOR with little or no mortgage.
Would this be allowed?
Owen
"Gambling promises the poor what property performs for the rich – something for nothing"
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