Tax relief on residential mortage

johnfrench10

I have a house that I rent out and I am looking to cut the tax I pay on the profits.

I used to live in the house and then started to rent it out when I moved elsewhere. At that time the house was worth £150,000 and I took a mortgage on it of £90,000. I already claim tax relief on the interest for that mortgage.

I don't think the IR would agree with me but the way I look at it, when I moved I took out a larger mortgage on my new house than I needed to. If I had sold my old house, I would have had £150,000 towards the new house rather than the £90,000 that I got by remortgaging. My residential mortgage is therefore £60,000 higher than it would have been if I did not rent out my old house. Therefore, the interest on the £60,000 is a cost that I incurred purely because I rent my old house out (even though it is secured against my own house not the rented house). I want to know if there is anyway I can claim relief on the interest for the £60,000 part of the residential mortgage.

I can imagine the IR won't agree but I know that I only have this cost because I rent my old house out.

Any thoughts?

CLAPTON

well you are incorrect;
HMRC will allow you to claim tax allowance on the interest on mortgages up the the value of the house when first let out... even if the mortgages aren't on the let property.

so you can claim for up to 150,000

now aren't they reasonable people?

silvercar

I agree with Clapton, as does my accountant:)

johnfrench10

Thanks very much.

Do you know of any resource that states this categorically? I think the subject of what they will allow and won't allow sometimes depends on who you speak to at HMRC so it would be good to have something to support this if it should ever be questioned. I am conscious that I will suddenly show a significant drop in the tax I pay on rental income if I claim relief on this so I want to make sure I can justify it.

Thanks again.