Buy to let or bigger house- wihch is the best value?

[MrsVidic]

In 4 years my DP and I will have paid off our mortgage (we will be working our asses off to do this and sacrificing holidays etc but figure out its worth it for the money we'll save) as we have 8 years in total to pay it off and incur no extra charges for doing so.

Anyway- as I will be 30 and him 40 we will both continue to work full time and have the extra money we are used to paying out. Therefore which is the better investment- purchasing a buy to let which we intend to then give our DD when she is older or increasing the size of our house.

We don't need a bigger house and are happy with the one we have but want the money to go 'somewhere' IYSWIM

Which is the better investment? Which will incur more tax when handing to our DD - the buy to let when she is 21 or a large house in our inheritance?

TIA

If you are sticking with property, then a different property. You have flexibility and it is not tied to your own residence.

However, I would caution against using a repayment mortgage as it is not so easy to draw down financing against a BTL property these days. Invest the repayment proceeds so you always have them available, should you so need them. The only caveat is to reduce a high LTV mortgage to a lower one which benefited from lower interest rates. In some ways, offset mortgages are ideal for this.

You have to think about Capital Gains Tax which could be liable if you gift the property to your dd. If you have a bigger house then there is no tax liability. You could gift the monies to dd when you want and then you have to think about Inheritance Tax. But how would access the money? You would need a mortgage with a drawdown facility or you should as said earlier invest money to give to your dd. I would have these investments in your name so that you keep control over the money and you can choose when to give dd the money.

CGT is likely to rise in the near future (it's currently a flat rate of 18% after the annual CGT free allowance (currently about 10K each per annum). So qualifying for principal private residence relief (relief from CGT on your main residence) is worth having.

However, I'm v suspicious both the Lib Dems and Labour will limit PPR relief for houses valued over a certain amount (guess). Which would actually make a lot of sense as it would take the wind out of the sails of another big property bubble and hit only those who had actually made a gain (ie their house had gone up in value).

It's currently extremely difficult to plan your finances tax efficiently. I'd hold off doing so until after the election.