Interest Only mortgage and tax relief

jeffers1969

Hi can anyone help

i own a property which i lived in for a short period of time and then rented out.
it has no mortgage.

i now wish to buy a property as a home rather than renting in another town,

if i obtain an interest only mortgage on the property with no mortgage, and use the funds raised on the buy to let mortgage towards purchase of new property to be used as my main home, when assessing my tax if say i have £5k rent recieved and £4k interest payment on mortgage will be tax be £5k - £4k ie tax on £1k less any other expenses to do with rented property

i thought htis was the case but i have been told not if money raised is used to purchase a property as a home for you to live in?

anyone any ideas?

Ian_W

Hi jeffers,
I'd always understood that it was the purpose of the loan rather than the property it was secured against, which was the decider so on that basis it wouldn't be tax allowable. However an accountant who posts suggested that certain changes which brought letting income within schedule D [Greek to me too mate!!] means it is - provided the loan doesn't exceed the original purchase price of the property.
I think you need to take professional advice, to me it's a possible maybe!

EDIT: Sorry I think that should be not to exceed the value of the property when you first started the business, i.e. letting it out.

jeffers1969

many thanks

michaels

I thought it was a case of you could only claim tax relief on a mortgage up to the same propoertion of the property value as the mortgage you had on it when you started renting it out - might be wrong though and not good news for you if you had no mortgage when you started renting.

cash99

Read this thread for the answer.

http://forums.moneysavingexpert.com/showthread.html?t=182550

The last post about Schedule A and Schedule D no longer applying to income tax is correct, I deal mainly with company tax, which has not changed. However even though it is now called something else, the principles have not changed.

It is worth getting professional advice so that you follow the correctg process and don't do anything to jeapordise your tax relief, but there is no doubt that you can get tax relief.