Own IP, now ready to purchase PPOR. What happens to my IP offset account?

Hi folks,

I currently have an IP, and have managed to get two equity releases related to that.
The scenario currently looks like this:

• Loan 1: 650k (initial loan)
• Loan 2: 40k (equity release)
• Loan 3: 50k (equity release)
  

Each loan has an offset attached to it.

• Loan 1 Offset: $300k
  • All investment expenses, investment income, plus spouse's income goes in to this account. All our savings are in this account, so occasionally, this account is used for larger purchases. If it helps, I am able to clearly distinguish what relates to the investment and what doesn't.
    (We have a separate everyday account that my income goes into, for rent and all living expenses)
    
• Loan 2 Offset: $0
  • moved cash in to Loan 1 offset, because the interest rate on Loan 1 is higher than Loan 2
    
• Loan 3 Offset: 50k
  • therefore fully offsetting Loan 3

We are now looking to purchase our first PPOR.

I'm concerned that if are using cash from Loan 1 Offset to fund our deposit (it will be 10%), we may start to contaminate the loans (that is, if we haven't already).

What obstacles might I need to look out for?
What funds should we use to purchase our PPOR - eg is a LOC or similar product better than taking cash out of our offset?

Our investment journey will continue later on (where we'll get in to debt recycling etc), but at the moment we are just focussing on PPOR.

Any thoughts / guidance / recommendations on who to speak with about this would be much appreciated.

Cheers

 

What are loan 2 & 3 for? Are they tax deductible?

You can use the offset without a problem, but you couldn't redraw on an existing IP loan.

 

The IP loans are IO, so the loan balance hasn't changed since buying the property. We've not used the any of funds from either equity release, they were just made available while refinancing.
The 40k from the first equity release is sitting in the main offset account, linked to the main loan.
The second lot of equity (50k) is sitting in a separate offset account - this hasn't been touched.

 

Hi spludgey, loan 2 & 3 are the equity releases on our IP, which haven't been used for anything, it's currently cash sitting there in offsets. So at the moment, they are tax deductible.

I've read a few of Terry's tips, and I just want to make sure that we don't get caught out by having cash in the wrong accounts when purchasing etc

 

What did you do with the funds from the equity releases?[/QUOTE]

Sorry, but I might be wrong, but given that the purpose of the loan is not tax deductible, I don't think the loan would be tax deductible? Doesn't matter for Loan 3, as you've got it offset anyway, but it may for Loan 2.

@Terry_w am I mistaken?

 

If none of the equity releases have been ‘used’ as such, to make sure they are not mixed for deductible purposes, pay down loan 2 and redraw to a clean (empty) account before use for IP. Same for loan 3 if needed.
I’m not an advisor so see Terry’s Tax tip #1 I think it is.
Also check with your professional advisor before making a payment for IP deposit etc rather than advice from randoms on an Internet forum (although awesome as it is)

 

Sounds like the op has borrowed and parked in an offset account - mistake 1, and then paid this into another offset account - mistake 2

.From what I see interest on loans 2 and 3 isn't and won't be deductible.