Working out profit/loss on rental income 1 account dilema

shazzz

Hi all, 1st post so bare with me pse;

House 1 owned for 10yrs and bought for 83,000 from ex partner.Natwest one account mortgage.

July 2009 re morgaged to buy another property. They increased my mortgage facility fr 83,000 to 275,000. This is an interest only mortgage as before. They would not release property 1 and property 2 was bought for 255,000.
There is no buy to let mortgage etc just 1 loan secured over 2 hses.

Basically i now have one large mortgage for 275,000 secured over 2 houses.

I rented out hse 1 (600 a month) in Aug 2009 through letting agent.

I live in hse 2 with my partner and children.

Natwest will NOT separate the mortgages for tax purposes and the mixed messages that i am receiving re tax on rental profit are driving me mad!

What do i do for tax purposes re offsetting rent against rental propfit. What figures do i use? Some say half overall loan as that seems fair, or, work out what the interest would be on 83,000 or, use the 275,000 figure and have no profit???? Any ideas please? I think there appears to be a loop hole re 1 account mortgages and renting etc. I have spoken to revenue etc and last answer was v unsure and said just work it out in good faith and keep your figures which really didnt help.

I have a 3rd property which is on a buy to let mortgage and is easy to work out but this has me stumped!

Can someone please advise me.

Many Many Thanks

shazzz

Thrugelmir

Pro rata the interest charged in relation to the amount used to purchase each property.

shazzz

Thanks, I think that i have adopted the ignorance is bliss attitude for too long!
Just dont want to be hit with a massive tax bill or get it wrong and get in a pickle.

Hse 1 bought for 83,000. (VALUED AT 160,000)

Hse 2 for 255,000 so calculations wont work out as my overall amount borrowed is 275?

So are you saying just work it out on what the interest would be on the 83,000?

Thanks

Gorgeous_George

Talk to a tax expert.

I believe that you can offset upto the value of the rental property at the time it was first let. It is well worth paying for the right advice. Ask on landlordzone.

GG

golfiematt

i would be interested to know the answer to this as ive been offered an extension of my exisiting mortgage to purchase a second property and so working out the interest seems a grey area

CLAPTON

GG is correct; you can claim up to the value of the rental property when first let out.
That is true for your other rental property too; it doesn't matter whether the mortgage is registered against the property

so if property 1 was valued at 160,000 when first let out then you can offset the interest on 160,000 against it... so that would be 160,000/275,000 of the total interest.

similarly for your third property

shazzz

Extensions are great to buy a 2nd property as i had as i didint have enough time to sell in time to purchase etc. Would be nice to know the definite answer though re tax and rent etc.

Do you have a 1 account mortgage if not get one they are great for interest as you only ever pay what you on on that day and NOT interest on the initial loan regardless of how much you have previously paid off it!!!!
No doubt ill get to the bottom of it and let you know. At the minute my 2nd hse rental income is nicely offsetting the bulk of my main home which is nice. This way round though does seem to be allot harder than having a buy to let ON PAPER NOT ON THE POCKET.

Oh also if you extend you get to keep interest rates of existing mortgage and not pay over the top buy to let interest etc.
Make sure your lender will allow you to let out one of the propertys as i believe that you have to apply for this and its not automatic etc.

getmore4less

Do you have consent to let property 1 since the debt is secured against it.

shazzz

Yes without any problem. They stated hat they assumed that I would do that as would not live in 2 houses etc.
I had to give them details of my landlord insurance though that was all.
Personally i think that there is a loop hole in the system with tne account mortgages and rentals etc due to the nature of the account and how it works etc; Only paying interest on what you owe that day so interest will vary depending on what sort of month you have.
I did enquire re working it out on what it was valued at when i rented it out but was told that didnt matter?

Depending on what advisor i spoke to depended on the answer i got. Bottom line though was no-one really Knew.

determined1_2

Some of the statements here are correct - some of them are not.

I am an accountant but do not specialise in tax. I advise that you appoint a tax adviser (will be one at a firm of accountants).

It is clear you are not confident and could quite easily make a mistake.

HMRC has brought in a new penalty regime that is much more strict with larger penalties.

Even if you only use the accountant for a year to find out what to do. The fee will be an allowable expense so will reduce your taxable profits.

Good luck