BTL Loan from spouse - allowable expense?

beedj

My wife is buying a BTL property; I have sufficient savings in an account in my name only, to loan her the full purchase funds. This would be an interest-only loan, at reasonable "BTL market rates" and would be documented with a full audit trail of original funds existing, then being transferred to her, then transferred to solicitor for property purchase. It would be wholly and exclusively for purpose of purchasing the BTL.

Would this be an allowable expense in the same way as a BTL mortgage from a lender in the market ?

kingstreet

I think you'll need an Accountant/HMRC for that answer.

My gut instinct is you'll have no chance. But it needs verifying.

paul1964_2

beedj wrote: »

Would this be an allowable expense in the same way as a BTL mortgage from a lender in the market ?

I think you might get away with it ..... but only if you are an MP.

Fire_Fox

http://www.hmrc.gov.uk/manuals/pimmanual/index.htm

chewmylegoff

beedj wrote: »

Would this be an allowable expense in the same way as a BTL mortgage from a lender in the market ?

well the starting point i suppose is that if you set up a company which your wife was the sole director of and shareholder of and you loaned money to it to finance its activities, including investing in property as far as i know, then the interest on that loan (as long as it was charged on commercial terms) would be a tax deductible expense for the company.

i can't see, therefore, why you cannot loan money to your wife in the same way if she is operating as a sole trader.

however, the interest income you receive would be definitely be subject to income tax (although this is obviously no different to the interest you will receive if you leave it sitting in the bank).

would seek proper professional advice though as the consequences of doing this and then having HMRC decide that it is not tax deductible after 5 years could be fairly ruinous.

00ec25

a private mortgage from you to her is no different to borrowing commercially provided, as you have already identfied, the audit trail clearly shows it was "your" money not joint money

richbeth

beedj wrote: »

My wife is buying a BTL property; I have sufficient savings in an account in my name only, to loan her the full purchase funds. This would be an interest-only loan, at reasonable "BTL market rates" and would be documented with a full audit trail of original funds existing, then being transferred to her, then transferred to solicitor for property purchase. It would be wholly and exclusively for purpose of purchasing the BTL.

Would this be an allowable expense in the same way as a BTL mortgage from a lender in the market ?

Hi,
even if it's possible this is only of benefit you are on a lower tax rate than your wife.

You're in danger of robbing Peter to pay Paul. If you could so this it would mean that your wife would pay less tax but you'd pay more (interest is income) and in addition your tax affairs would be more complicated which isn't normally a good thing

RB

beedj

Thanks for comments so far - don't understand the comment on why this would only be of benefit if I was on lower tax rate

eg assume loan required is £50k, BTL in market would be @ 5%
My gross interest on capital is 3% / net is 1.8% (40% tax payer)

If I don't lend to her, then I get £1500 gross/ £900 net interest p.a.; my wife pays £2500 interest to lender, which is also allowable expense (she is 20% tax payer) so effectively saves her £500 in tax

If I do lend to her (at 5%) then I get £2500 gross/£1500 net interest from her, she pays £2500 and gets same tax saving/allowable expense

So I'm £600 better off, my wifes position is neutral (though in reality she saves from BTL appliction fee which can be £500 or more for best rates).

Fire_Fox

http://forums.moneysavingexpert.com/forumdisplay.php?f=22

beedj

Fire_Fox wrote: »

http://forums.moneysavingexpert.com/forumdisplay.php?f=22

Link just takes me to the general cutting tax board, was that the intention?