Query re tax and financing purchase of foreign property

Legacy_user

If any tax inspectors or accountants out there can answer this I'd be grateful.

DH and I are thinking about releasing equity from our family home (remortgaging) to buy a foreign property which will be rented out. Our current mortgage is tiny and we have considerable equity.

If we do this can we set that portion of the new monthly mortgage cost pertaining only to the foreign property against the rental income or would the finance/mortgage have to be separate from our family home. We would have proof of the actual cost of the foreign property and the associated maintenance costs?

For example:

Current mortgage £20000 + Additional sum required for foreign property £80000 = £100000. Foreign property = 4/5 of sum borrowed

Total new monthly mortgage payment £500(guessing)

so total cost for foreign property = 4/5 x £500 = £400 to be set against rental income on tax return.

Is this allowed?

System

jimmo wrote: »

More or less correct It is only the interest that is allowable, not the actual repayments.

Thanks Jimmo we have an interest only mortgage at the present with endowments due to pay out within the next couple of years and had intended just to add to it again on an interest only basis.

So does that mean the finance for the foreign property needs to be separate from our current mortgage ie 2 completely separate mortgages or can we go ahead and release equity by remortgaging and then apportion the interest payments accordingly? We prefer this last option because it's easier.

Basically what I'm asking is will the Revenue accept an apportioned interest from a remortgage when we come to declare our rental income and expenses given that we will be able to prove the transfer of money for the purchase of the property and maintenance costs?

Cook_County

Doesn't it depend more on the tax, legal and inheritance laws in the other country? Which country is it, as you'll want to know if it will allow a mortgage interest deduction?

System

Cook_County wrote: »

Doesn't it depend more on the tax, legal and inheritance laws in the other country? Which country is it, as you'll want to know if it will allow a mortgage interest deduction?

The country is Germany and although we will have to fill in a tax return for there the income from rental will be within their tax free allowance so no German tax will be due. However what we were concerned about was the best way to finance the purchase to ensure we are allowed to set the mortgage interest payments against the rental income and so have no tax due in the UK.