Capital Gains tax on second property

al_yrpal

If you purchase a second property and let it you can offset your mortgage interest against your profit.

If you purchase a second property and don't let it you are allowed to offset the cost of certain improvements against your profit (the increase in value which is taxed as a capital gain when you sell).

Does anyone know if you can also offset any mortgage interest you paid against your final profit?

Ian_W

Hi al_yrpal,
Not an expert but my understanding is:

If you let it you can offset interest and other legit running costs [repairs, agents fees etc] against income to arrive at a taxable profit.

Whether you let it or not, you can offset capital works [improvements rather than repairs, ie new kitchen, central heating, D/G - that type of thing] against your capital gain. Has a specific name which escapes me ATM.

If you don't let it you can't offset the mortgage interest against your gain. The principle, as I understand it, is that revenue [running] costs can be set against income. Capital [improvements, which by their nature add value to the asset] expenditure can be offset against Capital Gains.

Maybe one of the experts who contribute to this board will be along shortly to tell you if I'm right or not!

reddevilled

Ian W is quite right. If you let your second property then any "revenue" expenses are allowed against your rental income. Any capital income is allowed when you sell the property against your capital gain.

If you don't let your second property then any capital improvements will be allowable against your capital gain on the property.

You will also probably be entitled to taper relief, and depending on the nature of the letting, this can be quite generous.