Tax Relief on mortgage for rental property

Thornhill

Hello,

I am in the fortunate position of being able to pay off the mortgage that I have on a rental property I own. I have been keen to pay it off as it is not a BTL mortgage and the fee to change it to a BTL mortgage would have been greater than the remaining balance on the mortgage.

My question is would it be possible to take out a BTL mortgage against the rental property and claim tax relief on those repayments, even if I am not using that mortgage to buy a new property? (I would like to use the money raised to perform some home improvements on my own house).

Thanks

bris

You can only claim the interest part of it back against the profit you make from the rental, the repayment part is seen as profit and is not tax deductable.
You can do what you want with the money you raise from it, the tax man will get his CGT at some point, he's patient, he can wait a very long time.

Thornhill

bris wrote: »

You can only claim the interest part of it back against the profit you make from the rental, the repayment part is seen as profit and is not tax deductable.
You can do what you want with the money you raise from it, the tax man will get his CGT at some point, he's patient, he can wait a very long time.

Thanks for the response Bris, I was always under the incorrect impression that any mortgage on a Rental Property was only liable for Tax relief if it was used to finance the purchase of that or another rental property.

I will look into this.

theartfullodger

Thornhill wrote: »

........ it is not a BTL mortgage and the fee .......


My question is would it be possible to take out a BTL mortgage ...........

So, you've a property being let with a mortgage that ain't BTL?? Do you have "Consent to let"?? If not I'd tread carefully, as any prudent lender finding you'd ignored the terms of your existing mortgage contract terms might decide you'd be likely to ignore the terms of any new mortgage also..

But, if CTL'd, nae bother....

anselld

Thornhill wrote: »

Thanks for the response Bris, I was always under the incorrect impression that any mortgage on a Rental Property was only liable for Tax relief if it was used to finance the purchase of that or another rental property.

I will look into this.

I think this is fine provided the amount released does not exceed the value of the capital account, ie what you originally paid for the property plus any capital improvements since.

Thornhill

theartfullodger wrote: »

So, you've a property being let with a mortgage that ain't BTL?? Do you have "Consent to let"?? If not I'd tread carefully, as any prudent lender finding you'd ignored the terms of your existing mortgage contract terms might decide you'd be likely to ignore the terms of any new mortgage also..

But, if CTL'd, nae bother....

Thanks for the replay, rightly or wrongly we did not bother with a CTL because there was only £100 left on the mortgage when we moved out, and the mortgage company wanted £300 for that consent.

Possible owngoal on our part from the looks of it.

Helen1971

Surely you could just clear the mortgage then raise a BTL mortgage on the property? Consent to let is only an issue where you're letting a house covered by a residential mortgage and your lender doesn't know about it.

I'd ask why you want to raise a BTL mortgage though. What will you do with the money released from the house you're letting? Even if you're paying income tax at the top rate you'd only get relief for 50% of the interest you pay, so interest will still be a cost to you. If you were releasing money to pay down higher interest debt it might be worth considering.

I'm a little confused by the reference to CGT earlier in this thread. Mortgage interest doesn't reduce CGT but it can reduce income tax.

Lovelyjoolz

Thornhill wrote: »

My question is would it be possible to take out a BTL mortgage against the rental property and claim tax relief on those repayments, even if I am not using that mortgage to buy a new property? (I would like to use the money raised to perform some home improvements on my own house).

Thanks

Yes, you can. I've done it recently myself. Once the original mortgage is cleared on the house, you can let it to whomever you like, without needing concent. Pay the £100, clear the mortgage and then look around for the best deal on BTL. What you do with that money is your business.

I imagine you want to borrow a fairly small proportion of the value of the house? If that's the case, there are some excellent deals to be had.

Thornhill

Lovelyjoolz wrote: »

Yes, you can. I've done it recently myself. Once the original mortgage is cleared on the house, you can let it to whomever you like, without needing concent. Pay the £100, clear the mortgage and then look around for the best deal on BTL. What you do with that money is your business.

I imagine you want to borrow a fairly small proportion of the value of the house? If that's the case, there are some excellent deals to be had.

Thanks for the response joolz, its useful to know that its possible.

In terms of a borrowing amount we are not currently sure, we could just borrow what we need for home improvements on our place or take more and invest, possibly.

00ec25

Thornhill wrote: »

In terms of a borrowing amount we are not currently sure, we could just borrow what we need for home improvements on our place or take more and invest, possibly.

For tax purposes only, you are restricted to claiming relief on the value of the property when it was FIRST let, so this limits the max you can borrow if you want to claim tax relief on all your borrowings - that may or may not be its original purchase price depending on when your rental business started.

You can indeed spend the money as you wish.

If you borrow less than the max now, then consider getting a mortgage that allows you to increase the borrowing at a later date without having to formally remortgage.
If you increase the borrowing at a later date you can't claim interest on more than the original capped amount so never remortgage for the full value of the house at that later date - assuming it has increased in value above the start point!