Tax on Property Income - making the best of

jamesd

John_Pierpoint wrote: »

I have a funny feeling that extracting "equity" capital from the business and then trying to claim the extra borrowing interest as expenses is something to have to think about before purchasing the business asset?

Example 2 at BIM45700 - Specific deductions - interest: Withdrawal of capital from a business may be of interest. Note the use of the withdrawn funds to purchase a private residence. Example 1 covers using overdraft borrowing that causes the business to have to pay interest as allowable to withdraw money.

John_Pierpoint

jamesd wrote: »

Example 2 at BIM45700 - Specific deductions - interest: Withdrawal of capital from a business may be of interest. Note the use of the withdrawn funds to purchase a private residence. Example 1 covers using overdraft borrowing that causes the business to have to pay interest as allowable to withdraw money.

I think this was the bit I was remembering:

Although he has withdrawn capital from the business the interest on the mortgage loan is allowable in full because it is funding the transfer of the property to the business at its open market value at the time the business started. The capital account is not overdrawn.

The underlining is mine - so as long as there was a valuation at the time the BTL business started, then withdrawing up to the (then) market value of the property should be OK ?

[No wonder first time buyers complain that they are not on a level playing field when competing to buy with a BTL landlord - they are paying for the privilege of being the caretaker while the landlord waits for the capital gain].

jamesd

Right, no more than 100% of the value at the time the property entered the letting business for interest deducting. Can borrow more than that, just not deduct the extra mortgage interest. A valuation at that time, or preserved evidence of local selling prices, would be good.

A fair number of BTL landlords lost a lot of money and some went bankrupt after the events of 2007-8 so it's not quite as low risk as might be thought. Even some pros lost a lot of money in some places.

An FTB can think more like a landlord or follow a more traditional trading up approach. Flat that needs work first. Do it up, switch to a small house that needs work. Repeat as desired. Or just keep the original inexpensive place and save lots of money due to the low outgoings - my interest only mortgage cost is close to my council tax bill and usually lower than the local (very expensive) water rates those without a meter pay.

xylophone

Was the let property ever your principal private residence?
http://www.direct.gov.uk/en/moneytaxandbenefits/taxes/taxonpropertyandrentalincome/dg_4020890

If you sold the property there would be no problem about your giving half or even all the proceeds to your husband although you might wish to make sure that you had each used your full ISA allowances first.

You could put up to £3600 of the proceeds into a JISA for your newborn in this tax year. http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/SavingsAndInvestments/ISAsandJuniorISAs/DG_199672