Tax on property if net rental income is zero ?

Tadger

I posted this in the cutting tax forum but it didn't get any response:

My girlfriend is going to move in with me and wants to rent her flat rather than sell it.

I have an offset mortgage so wondered if we could use that to save her paying tax on the rental income.

Her flat is worth ~200k, and she curently has an interest only mortgage on it of ~60k. She knows that she could easily get a rental income of £850 per month.

The plan is that she remortgages up to ~140k, which means repayments of approx £850 at the current~ish rates.

She could then put the 140k into my offset mortgage, in order to save interest on that.

Am I right in thinking that because her mortgage payment is the same as the rental income she wouldn't pay any tax on it ??

And also is she allowed to offset the money gained from her re-mortgage into my mortgage, or would it have to be in both our names ??

silvercar

And also is she allowed to offset the money gained from her re-mortgage into my mortgage, or would it have to be in both our names ??

She can do what she likes with her money; the problem comes if you split up and she wants her money back. She should get a legal contract drawn up.

Remember it is the purpose of the loan that counts (for setting income agains mortgage interest), not where it is secured. Part of the money to fund my BTL is secured on my main residence ie I took a larger mortgage on my home to fund the BTL deposit.

abomb1969

This is the best way to do it, its how my finances are arranged to reduce tax.

Tadger

Great news, thanks for the replies guys....

Now the next question... I'm guessing she needs to inform the Tax man, but does she need to set up a company to rent a house she is no longer living in ??

PoorDave

No reason to set up a company, i don't think. That is to say it is not essential.

Someone with more knowledge know whether it's advantageous though? I have a feeling it's not, from the point of view of capital gains tax, but i could be way off

kirsty99

The plan is that she remortgages up to ~140k, which means repayments of approx £850 at the current~ish rates.

She could then put the 140k into my offset mortgage, in order to save interest on that.

Am I right in thinking that because her mortgage payment is the same as the rental income she wouldn't pay any tax on it ??

Provided that is the mortgage interest payment, that is correct. She will also be able to offset any fees charged by a letting agency for managing the flat, drawing up a tenancy agreement etc, and insurance on the flat.

Now the next question... I'm guessing she needs to inform the Tax man, but does she need to set up a company to rent a house she is no longer living in ??

Setting up a company isn't essential I don't think but she will need to inform the tax man, and complete a tax return, even if it is just to show that there is no tax to pay on the rental income due to mortgage interest payments etc.