Unpaid Tax - Rental Property Help

jamesd

LastToKnow, you're being taxed in payroll for the difference in interest rates, or should be. The neatest way to handle it is probably to calculate using the non-beneficial rate for the business interest deduction from rent and include a note explaining the part about the benefit which you've already been taxed on. That would produce the correct tax result and you'd have the defense of having fully informed HMRC in the event that there's some problem later or question about the BIK tax.

There's nothing wrong with asking HMRC about this either. You can explain the basis of your calculation, fully disclose all facts, and ask them to let you know if you're mishandled this part of the calculation.

bordercars

The most important point...Have you taken a deposit now. From the past history i guess so. then you must lodge it somewhere. it can go in several schemes you will then get a cert to give your tenant, if not and it goes ***s up you cannot go to court you cannot get them out . they have every power on their side.

John_Pierpoint

.......and the tenants get a three month rent holiday because you have not protected their deposit, I remember correctly.

antrobus

jamesd wrote: »

chirsmac1, this is a business purchase, not a personal one. It's routine practice to borrow money secured on your own home (as an individual) and lend that to your BTL business (you lending the business money) to buy a property. The BTL business is allowed to deduce the interest cost from income, but can't deduct more than the actual rate paid. One reason why it's routine practice is that it's cheaper because interest rates on own-home mortgages are lower than on a BTL mortgage secured on the property that is being let.

Your mistake may have been thinking of a buy to let business as a private purchase. Or perhaps thinking about the security (occupied home) rather than the business asset (the BTL property) that the loan funds.

Even PIM2105 that you cited is very explicit about this in its second paragraph:

"For IT, interest payable on loans used to buy land or property which is used in the rental business, or on loans to fund repairs, improvements or alterations, is deductible in computing the profits or losses of the rental business in the same way as other expenses."

Most of the rest of PIM2105 covers such things as the way to split the interest into personal and non-personal use.

As BIM45690 says:

"When the business is funded using borrowed money and that money is used for business purposes the interest is allowable as a deduction in computing the business profits. The interest is not allowable as a deduction if the funds are being used for private purposes"

BIM45700 may also be of interest.

If in doubt, seek advice from an accountant experienced in dealing with BTL matters.

This is correct. Previous poster was misleading. It's what you use the money for, that determines whether interest on a loan is allowable as a tax deduction, not the security you provide for the loan.

Lasttoknow

Thanks everyone for your replies....I rang HMRC and it turns out it wasn't as daunting as I originally thought....even thought the lady who answered was very argumentative??!! Why??.....I have no clue....perhaps it's the nature of their job???! I did ask her to repeat herself a couple of times, only because of my lack of understanding, not because I was disputing what she was saying to me!!!

Anyway, the issue of my beneficial loan is now something I have to address....

I earn £9k per annum and as per my prev post, my mortgage is made up as follows....

£44k at 0.5%
£85k at 1.69% (1.19% above base rate)

Total mortgage £129K

I have savings of £29k (£17k in isa's paying around 2.8% and £12k in a savings account paying 2.6%).

Aparently HMRC take the whole loan into consideration, not just the £44k staff element??

My question is, is it worth me having the staff element? Should I work towards paying off the staff element and just leave the public rate of £85k at 1.69%?? This would obviously take some time to do.....but in the long run, as my staff proportion is relatively small in relation to the size of my mortgage, is it worth my while just getting rid of my beneficial loan??

I really appreciate any help/advice.

Thank you all.

Lasttoknow

Anyone able to help?? Thank you for reading! X

mart.vader

jamesd wrote: »

If there's a mortgage you may well owe no tax, since interest on a mortgage up to the value the property was purchased for is deductible from rental income.

JamesD,

Are you sure? Can you deduct interest up to the original value of the mortgage?

I have been deducting the interest I actually paid on the mortgage on my rental flat, from my rental income, in my SA tax return, although I paid off the bulk of the mortgage a while ago.

The original purchase price was £41K, the mortgage was £39K, I paid off £24K, so during the rental periods, I paid interest on around £15K, and deducted that from my rental income.

How would you work out what the interest would have been if the mortgage was at its original level?

jimmo

Lasttoknow wrote: »

Anyone able to help?? Thank you for reading! X

As things stand you do seem to be suffering because both your "staff" mortgage and your "normal" mortgage are at rates below HMRC's official rate, currently 4 %.
http://www.hmrc.gov.uk/rates/interest-beneficial.htm
If you were able to replace your "staff" mortgage with an increased "normal" mortgage you could gain an advantage taxwise for the present because whilst your total borrowing would still be at a rate below HMRC's official rate it would be money borrowed on normal commercial terms and not subject to the benefits legislation.
For reasons I don't pretend to understand it seems to be a common tax problem that financial institutions combine "staff" mortgages and "normal" mortgages into a single loan and their employees suffer the consequences. If you can follow the logic in this link then you are doing better than me but in my days as a taxman we relied on the financial institutions to determine whether there was a single beneficial loan or 2 separate loans, one beneficial and one not.
http://www.hmrc.gov.uk/manuals/eimanual/EIM26109.htm
However, what of the future?
To my memory, which may not be totally reliable, "staff " mortgages have been set at 0.5% since Adam was a lad and will probably carry on at that rate for ever and a day.
However, your "normal" mortgage is set at 1.19% above base rate.
Whilst it won't happen overnight I think you need to consider the effect on your pocket if base rate went to 5, 6 or 7%. Take a look at Martin's blog.
http://blog.moneysavingexpert.com/2010/11/04/a-mortgage-warning-take-a-look-at-the-uk-interest-rates-history-since-1694/
If you can get out of your "staff" mortgage for the time being there may a tax advantage to be gained in the short term but if you can't get back into a "staff" mortgage when the financial tide turns you could well shoot yourself in the foot.

Lasttoknow

jimmo, thank you for your post.

The staff element is fixed at base rate....so if base rate goes up, so does my mortgage.

The remainder is 1.19% above base, so this will also rise if (when) base rate rises.

Is it worth having no savings, but no staff rate neither do you think?

Lasttoknow

Bump - thanks guys!