Claiming buy to let interest on tax return if I have briefly lived in property

hostie

I recently remortgaged a house that I was (and still am) renting out and used the proceeds to buy a flat.
I always had it in mind that I would eventually rent the flat out but I told my solicitor that I was going to live in it (a mistake maybe). I moved into it and carried out some renovations. After 3 months doing the renovations, I moved out and have been house sitting for a friend and renting the flat out.
When it comes to do my tax return, I would like to deduct the interest payments from the buy to let mortgage on the first property. I understand I can only do this if the money was used to buy another buy to let flat.
I now realise that it could be a problem that I told the solicitor I was planning to move into the flat… and also that I stayed in it for a few months whilst decorating.
I am house sitting for another month and was thinking of moving back to the flat after that to finish the renovation and possibly put another wall up in it, before I then try to re-mortgage to buy another place.
Does anyone have any advice on this?
The interest payments on the buy to let mortgage I took out on the house are high and I took the mortgage out believing that they would be tax deductible.

Old_Git

hostie wrote: »

I recently remortgaged a house that I was (and still am) renting out and used the proceeds to buy a flat.
I always had it in mind that I would eventually rent the flat out but I told my solicitor that I was going to live in it (a mistake maybe). I moved into it and carried out some renovations. After 3 months doing the renovations, I moved out and have been house sitting for a friend and renting the flat out.
When it comes to do my tax return, I would like to deduct the interest payments from the buy to let mortgage on the first property. I understand I can only do this if the money was used to buy another buy to let flat.
I now realise that it could be a problem that I told the solicitor I was planning to move into the flat… and also that I stayed in it for a few months whilst decorating.
I am house sitting for another month and was thinking of moving back to the flat after that to finish the renovation and possibly put another wall up in it, before I then try to re-mortgage to buy another place.
Does anyone have any advice on this?
The interest payments on the buy to let mortgage I took out on the house are high and I took the mortgage out believing that they would be tax deductible.

you can claim tax on the interest but not for the time you lived there .

anselld

Provided the mortgage on the house does not exceed the value of the house when first let then you can do what you like with the money so the flat is irrelevant.

hostie

My question is about claiming the interest on the mortgage as a deduction on my tax return. I was told by an accountant that it is the use of the money (i.e. the flat it was spent on and not the house it was secured on) that dictates whether the interest payments on it can be claimed.

Guest101

Well do u have consent to let??

hostie

The property I took the buy to let mortgage out on was already let when I took the buy to let mortgage on it. My problem is not related to the mortgage documents or the provider (it's a buy to let mortgage so consent to let is implicit). As I own the flat, I am not accountable to a mortgage provider when I am renting it. The issue is that I want to deduct the £700 interest I pay each month on the buy to let mortgage as an expense.
I was told by an accountant that if the flat I bought was for me to live in, the mortgage interest, even though it is secured on a different (and rented out) property, is not deductible.

anselld

If you have an accountant why are you asking here?

cte1111

OK, so you own 2 properties. One is unmortgaged, the second has a buy to let mortgage on it. Overall, your property business has income from the 2 properties (only 1 whilst you were living in the flat) and expenditure for the interest part of the mortgage (plus letting agent fees, landlord insurance, etc). I wouldn't get too bogged down in the details of which mortgage was used to buy which property, overall your properties are let and the loan has been used to buy the original house and the flat.

https://www.gov.uk/renting-out-a-property/paying-tax

You can also deduct wear and tear type work to the properties, but this doesn't count for any work done before the initial let.

hostie

The reason I am asking here is that the accountant seems to know less about this stuff than I do. People who rent out property are in a better position to help me. She was pretty clueless to be honest. I think she may be right that I can't claim the tax if I am living in the flat, but my question is about whether it matters that I said to the solicitor that it was to live in. I believe I can have what is called a 'property register' and there may be some way to undo the issue of having said that it was going to be for me to live in it.
I'm pretty sure that when I move out and the place is a buy to let, I can claim the tax. What I need is help from people who already have two or three properties and are slightly further ahead than me.

kinger101

hostie wrote: »

The reason I am asking here is that the accountant seems to know less about this stuff than I do.

Time to find a new accountant. If it's only taxation advice you need, a chartered taxation advisor would be better.

jennifernil

Looking at some HMRC stuff, I would say your accountant is wrong.

What was the value of the house when you started renting it out? If the mortgage on it is less than that, then you can claim all the interest for tax purposes.

What you spent the money on is irrelevant.

Example here....

http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm

I looked into this when my daughter took a mortgage on a property she owned outright and started renting out. She used the funds released as a deposit on the house she was buying to live in.

The example above was quoted to me at the time to show that this was OK to do.

In her case the property value was £160k and the BTL mortgage £88k. If your mortgage is more than the property value when first rented out then it would seem the tax relief would be limited to the interest on that value.