Mortgaging to set against tax ?

danlondonuk

Hi I would appreciate advice, I own outright a small flat without a mortgage as this was paid off sometime ago, I am planning to rent out the flat but realise that as I dont have any mortgage on it
I will face large Tax costs against the income recieved.
Many have stated to me 'Oh just go and get a buy to let mortgage on it' however if I already own the property and the sole reason is to reduce tax and not buy another property would this be allowed?

I understand that tax relief on interest payments are allowed only on loans taken out to purchase the property, as I own it and would not be purchasing what I already own am I still able to release equity and set the loan interest off against my tax bill from the rent whilst not spending the new loan on property but investing it say in
equities or a high interest account.

Is the HMRC allowance for interest only mortgages allowed if one takes out a new mortgage without using the money to invest in a property? As I dont want to buy any other property at this time what is the best way to reduce the tax liability on the owned flat

kingstreet

I think you're going to have to ask HMRC about this. Let us know the outcome, please. We were discussing relief on a mortgage raised on the landlord's residential property to buy a BTL yesterday and this is another issue needs clarifying.

poppysarah

danlondonuk wrote: »

I will face large Tax costs against the income recieved. flat

Well done!
Someone has to!


You should speak to an accountant who has knowledge of landlord tax issues.

HMRC are very helpful if you ring them up.

taxsaver

Yes, you can off-set the interest cost (but not any capital repayments) against the rental income for any loan you have regardless of what you use the loan monies for. The loan cannot exceed the value that the property you are letting out had at the time you first start to let it.

Kingstreet - your client can off-set interest charged on money raised against his private residence where that money can be shown to have been used to purchase a BTL (again, restricted to the value of the let property at the time it first is first let).

kingstreet

taxsaver wrote: »

Yes, you can off-set the interest cost (but not any capital repayments) against the rental income for any loan you have regardless of what you use the loan monies for. The loan cannot exceed the value that the property you are letting out had at the time you first start to let it.

Kingstreet - your client can off-set interest charged on money raised against his private residence where that money can be shown to have been used to purchase a BTL (again, restricted to the value of the let property at the time it first is first let).

Aye. We sorted the latter bit out yesterday on that other thread. It was raising the cash on the BTL after the event I wasn't sure about. Under company tax law you can saddle a debt-free business with your leveraged purchase finance after you get control so your answer wasn't a surprise.

danlondonuk

Must this be a Buy to let Mortgage or a Let to Buy rather than
just taking out a low rate ordinary home owner mortgage, as long as
the mortgage is paid and it is an interest only mortgage for tax purposes what is the problem with taking out an ordinary low rate tracker rather than a high charged btl, either way all I have to insure is that the mortgage is paid ? Is this correct ?

On an Interest Only mortgage can the full amount of the interest be set against the rent recieved Have I got my following calculations on what can be claimed wrong?

ie Borrowed 80,000 @ 5% = £4000 per annum interest charged
Rent say is 800.00 PCMx12= £9600 income (tax owed at 40% is £3840) Do I then take off the £4000 annual
interest charged therefore reducing my tax to Nil?

kingstreet

danlondonuk wrote: »

Must this be a Buy to let Mortgage or a Let to Buy rather than
just taking out a low rate ordinary home owner mortgage, as long as
the mortgage is paid and it is an interest only mortgage for tax purposes what is the problem with taking out an ordinary low rate tracker rather than a high charged btl, either way all I have to insure is that the mortgage is paid.

RIGHT OR WRONG?

It would be a let to buy if you were planning on using the loan to buy a property to live in. Is that the case?

You couldn't satisfy the declaration that you intend to live in the property immediately on completion and would be committing mortgage fraud if you applied for a normal residential mortgage. You'll also struggle to get interest-only with no repayment vehicle if you don't apply as a BTL.

BTL deals aren't that bad, unless you're trying to get over 80% of the value of the property.