Tax on letting

Annisele

Jimjam, HSBC are offering interest only mortgages with LTV of 80% so this is not a problem.

I suspect you'll find that it is a problem. Interest only mortgages are available - but usually only to people who have a separate repayment vehicle. If you can't afford a repayment mortgage, it's unlikely that you'll be able to persuade HSBC that you can afford an interest only mortgage plus a repayment vehicle.

You might be able to swing this by mortgaging the first house - but buy to let lenders usually expect the rent to be at least 125% of the mortgage payment.

Cariad71

The first house is the repayment vehicle. It's valued at 200k. The interest only mortgage is 175k. Is this what you mean?

real1314

sequence wrote: »

Can someone explain why the interest on the new home is an allowable expense for the letting business ? It doesn't make sense to me, since the new home has nothing to do with the rental business, but I'm not knowledgeable on these things.

If you raise a loan to start a business, but secure it on your home, the interest would be allowable for the business.

Same here, but it's a mortgage instead.

:cool:

sequence

True, but the loan isn't to start a business, they have already paid for the house they are going to be letting out. If they let out the new house it would make sense. I'm probably wrong though.

Cariad71

The loan would be to start a business. That's the only reason I need it. Yes I have paid for my home, but from the time I take the loan out, it won't be my home, it will be a residential let.I'll let you know what HMRC say tomorrow.

real1314

sequence wrote: »

True, but the loan isn't to start a business, they have already paid for the house they are going to be letting out. If they let out the new house it would make sense. I'm probably wrong though.

The "business" (the property to be let) will be buying the property from the OP; it will use the loan to do this.

This link covers the issue of the security:-

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45685.htm

This covers a discussion of the issue:-

http://www.accountingweb.co.uk/anyanswers/question/allowable-interest-rental-property

:cool:

Cariad71

Would you "invest" £180k with someone who said you also have to pay £500 per annum fees; that you can't liquidate it without significant capital loss, and that its uncertain how much growth you will get (if any) over the next 10 years? I wouldn't. :cool:[/QUOTE]

Wow, copy and paste is just too complicated for me. I accidentally reported your post as Spam about 5 times in process.


[FONT=Arial, Helvetica, sans-serif]Why can't I liquidate it without significant capital loss? Isn't selliing it at market value liquidating it? Where's the loss? Sorry if I'm being twp. [/FONT]

Cariad71

ok, so HMRC do have a helpline. Basically I can't offset the rent against the mortgage interest.

I am breaking the "wholly and exclusively" rule. See Pim2100

Here is a quote from HMRC pim2105:


Similarly, the interest on a loan or overdraft may not be allowable, or only part may be allowable, where the taxpayer, for example, uses the borrowing:

• to buy non-rental business investments (which may be shown in the balance sheet as assets),
• to buy private assets or assets for their family,
• for the provision of private funds to be taken out from the rental business.

I'm buying private assets according to them.

googler

Regarding letting it out to a 'friend'...

Never do business with friends or family.

Also; there's no guarantee house prices will go up. Where will you be if they go down? Have you done your sums to factor this in?

N79

Cariad71 wrote: »

ok, so HMRC do have a helpline. Basically I can't offset the rent against the mortgage interest.

I am breaking the "wholly and exclusively" rule. See Pim2100

Here is a quote from HMRC pim2105:


Similarly, the interest on a loan or overdraft may not be allowable, or only part may be allowable, where the taxpayer, for example, uses the borrowing:

• to buy non-rental business investments (which may be shown in the balance sheet as assets),
• to buy private assets or assets for their family,
• for the provision of private funds to be taken out from the rental business.

I'm buying private assets according to them.

HMRC are correct that as you have described your intentions you can not claim tax relief. However, don't give up too easily - if you restructure the way you are setting up the business then you should manage it, although this will depend on your exact circumstances.

If I understand correctly then your new house costs less than the value of the old house? If this is the case, and if your future tax bill is high enough to cover the costs and warrant getting the tax allowance then see a good tax avoidance lawyer and they should be able to set up the transactions for you.

Currently your plan is to set up the business and then buy a house with business assets - which is not allowable. In a nutshell, you need to reverse the process so that you buy the new house as a personal transaction and then borrow to set up your business. For example, if you sold your old house, bought the new house to live in and then bought a second new house as a BTL then you would get the tax relief. A good tax lawyer should be able to replicate this chain thus getting you the tax allowance.