Tax relief on renting out

jennifernil

A friend has invested in a flat to rent out. From what I have read on these forums, she seems to have been badly advised on the mortgage. She has borrowed against her own home, presumably at a lower rate than a BTL mortgage, but was told she could still claim tax relief on the interest.
She has also been told she can claim £8000 a year for wear and tear and other things.
Can anyone give an answer on this and is there a website where she can see exactly what she can set against the rental income?:

BobProperty

jennifernil wrote:

A friend has invested in a flat to rent out. From what I have read on these forums, she seems to have been badly advised on the mortgage. She has borrowed against her own home, presumably at a lower rate than a BTL mortgage, but was told she could still claim tax relief on the interest.

Yes

jennifernil wrote:

She has also been told she can claim £8000 a year for wear and tear and other things.

No, you can claim 10% of the allowable rent or the actual costs of replacements. You can't easily switch between the two IIRC.

jennifernil wrote:

Can anyone give an answer on this and is there a website where she can see exactly what she can set against the rental income?:

Probably on here, Tax forum? Landlords forums such as Landlordzone and the RLA site.

jennifernil

Hi BobProperty, do you mean she can claim tax relief on the interest? If so can she claim for the full amount she has borrowed?
Or do you mean she has been badly advised?

rosysparkle

Your friend can set against her tax liability "any expense wholly and exclusively concerned with the letting, which is not of a capital nature".

In practice this means things like interest (not capital repayments) on a mortgage, advertising costs, lettings agents fees, cost of utilities during empty periods, cleaning and gardening, insurances (buildings, contents, rent protection), gas checks, repairs that are not significant improvements etc.

Some guidance is given here:
http://www.hmrc.gov.uk/manuals/pimmanual/pim2015.htm
and here:
http://www.hmrc.gov.uk/manuals/pimmanual/pim2020.htm

abaxas

GET AN ACCOUNTANT AND A TAX ADVISER (probably one of the same)

If she doesnt have one of these she might as well give up now.

ps sorry for shouting.

jennifernil

Thank you everyone, I will pass the links on to her. She will be relieved to hear she can claim relief on the interest.
One further question...........after buying the property she had to spend money on new windows, rewiring, central heating, new kitchen and bathroom, decorating and furnishings. If the mortgage against her own home was to cover the purchase price of the BTL plus the cost of all the work, materials and furnishings, can she claim the full amount of the interest, or is it restricted to the interest on the initial purchase price of the property?

Alan_M_2

You need professional advice, I was of the understanding that maintainance or wear and tear was allowable but improvements weren't, as previously mentioned, get an accountant.

jennifernil

From reading the links above it would seem that some of the work she had to get done could be classed as "repairs", it seems a bit of a grey area. She has just completed her first year as a landlord so will need to do a tax return soon, I will suggest she finds a good accountant!

silvercar

Inland revenue guidance, see example 2 in particular:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

Basically it doesn't matter where the mortgage is secured, if its purpose is to fund the letting business your OK, even if the loan is to re-imburse you the money you put into the flat in the first place.

Mrs_pbradley936

You can claim for your mortage interest and 10% depreciation on furniture OR submit receipts or invoices for items replaced BUT NOT BOTH. Decorating and upkeep are allowed but not improvements. As other have said get professional advice because you can get relief on that as well.