Income tax question re. mortgaged second property

MarkBargain

I bought a new house last year (new mortgage) which I now live in. My old house is owned outright and is on the market but the sale has just fallen through. I know some people interested in renting it, but that's not worth it if I have to pay income tax on the rental income.

If I take a mortgage on the old house (and use it to pay off part of the mortgage on the new house), am I right in thinking I can then offset the mortgage payments against the income tax? So if I get £600 a month rent, can I set the mortgage amount and term to cost me around £600 a month meaning I pay no tax?

Also, I presume that refurbishment costs of the old house can be offset for tax purposes as I'd need to get it decorated with new carpets etc.

It's probably easier just to try to sell it again, but just toying with the idea!

monty-doggy

I think it's just the interest you can Offset which is why lots people switch to interest only.

Don't forget all the LL responsibilities too like if the boiler breaks, damp, general upkeep and what happens if the tenant doesn't pay.

Dave_the_Ginger_Cat

It's the interest part, yes. You can stay on a C&I mortgage so long as you can demonstrate how you've worked out the interest components

And the refurb - you can offset the costs of repairs which keep it like for like, not an upgrade (unless the cost of an upgraded component is less than the cost of like for like)

So I have claimed for UPVC windows, Gas central heating (on the basis it was cheaper than 5 fires and water heater). But you could not for example claim for granite work surfaces where only wood ones existed

I know it might be a surprise, but HMRC have very good booklets on rental - I'd suggest have a read through that

MarkBargain

Thanks for the responses, very helpful. I thought it would be the interest-only bit, that makes sense.

Werdnal

If you are planning on becoming a landlord, lots more info here:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

You would still have to declare the rental income, less the mortgage interest and any other allowable expenses, and depdning on your other income, you may still be liable for tax. It may also affect any benefits you receive.

If you are mortgaging the property you plan to let, it would have to be a BTL, with 25% minimum deposit.

MarkBargain

Werdnal wrote: »

If you are planning on becoming a landlord, lots more info here:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

You would still have to declare the rental income, less the mortgage interest and any other allowable expenses, and depdning on your other income, you may still be liable for tax. It may also affect any benefits you receive.

If you are mortgaging the property you plan to let, it would have to be a BTL, with 25% minimum deposit.

It looks like the sale may be going through after all, so hopefully I can avoid becoming a landlord with all the hassle that brings.

Thanks for the advice though, it is good to know.

Guest101

Have you checked CGT? 2nd property and all. Bit late now, but sometimes its better to have your own management company for these things. Yes you have to register your company and yes you have to file accounts, but atleast then you have company protected status for tax purposes.

holly_hobby

No CGT within 36 mths of vacation (full exemption and regardless of occupation) IF the property was their primary residence upon initial purchase (which I am assuming it was).

So given the OP only moved out last yr, and it appears it was prev the primary residence from the date of pch until that time, then no CGT liability at all, no matter what the gain.

Hope this helps

Holly

Guest101

Holly, excellent point, I missed that, thanks for that.

Showing my inattention to detail there!

holly_hobby

Pleasure amigo


H xx