buy to let - never declared

silvercar

The logic is that the BTL is a business and so the expenses including the purchase of the property are allowable expenses. Whether you secure this money to purchase by a BTL mortgage, a business loan from your bank, increased mortgage on your home, borrowing from friends etc it is still a loan for the purpose of your business.

Some landlords, just get a loan facility over a number of properties rather than specifying individual loans on each property.

OK, so if I have two houses, one BTL with £100k mortgage and £80k mortgage on my home I would currently get tax relief on the interest payment only on the £100k BTL mortgage
What you are saying is that if I raised the mortgage on my home to £180k and paid off the BTL completely I could then claim tax relief on the whole £180k (providing the BTL is worth more than £180k)

I would think that a tax inspector will not accept this as the 100k was taken out previously to buy your home. But reading some of the revenue blurb about capital accounts you could try it; I would think the lack of a paper trail showing the original 100k was in any way contected to your business may be a problem.

As interest rates have risen this year, I did take some money from my offset (fixed rate) mortgage savings account and reduce the (variable rate) BTL mortgage, but it made sense whatever the tax treatment. Mainly as I'll make a loss this year!

beingjdc

boyse7en wrote: »

>>You purchase a buy-to-let, say you have 50% deposit in cash and you want a mortgage for the rest. If you take a mortgage on the BTL property you will probably pay half a percent more than a mortgage you could get on your residential home. So you take the mortgage on your home. The purpose of the mortgage is for the BTL so the interest is an allowable expense.

OK, so if I have two houses, one BTL with £100k mortgage and £80k mortgage on my home I would currently get tax relief on the interest payment only on the £100k BTL mortgage
What you are saying is that if I raised the mortgage on my home to £180k and paid off the BTL completely I could then claim tax relief on the whole £180k (providing the BTL is worth more than £180k)

Have I got that right? I'm tying myself in knots trying to work out the logic...

Yes, but it's not the 'interest payment' you get the tax relief on, it's the rental income, up to a maximum of the interest - you could probably get away with this at any amount up to the value of the BTL. It's a bit of a swizz that you can remortgage them at a value above the purchase price, in my view.

PasturesNew

It just occurred to me ... slightly off at a tangent ... if you've not declared a BTL to the mortgage company - and, say, there were an insurance claim... could the insurance company refuse to pay out (even if they knew it was a BTL) simply because you had the wrong mortgage?

regularsaver1

does you have a proper BTL mortgage too?

cagey76

Griptool wrote: »

Why are you persisting with a BTL if you are losing money?

I lose 100 quid a month, but the value of it has risen on average 1000 per month since I've had it. I've had a bit of hassle along the way, but not a bad savings plan ?

The new tax changes may mean it gets sold next year, and of course I would declare the capital gains.

silvercar

beingjdc wrote:

It's a bit of a swizz that you can remortgage them at a value above the purchase price, in my view.

Why, its your equity. Do with it what you want. The problem comes when people want to sell but having taken all the equity out, haven't got enough cash to pay the CGT bill that the sale generates.

You do only get tax relief on the mortgage payments upto the value when you initially let it, so taking more than this amount out is going to cost.

Pasturesnew wrote:

It just occurred to me ... slightly off at a tangent ... if you've not declared a BTL to the mortgage company - and, say, there were an insurance claim... could the insurance company refuse to pay out (even if they knew it was a BTL) simply because you had the wrong mortgage?

I doubt it. On what grounds? If they knew the property was let, how could they refuse a claim. The type of mortgage would have no bearing on the claim. (Unless it was trashed by the tenant about to be evicted due to the landlord's mortgage fraud!)

cagey76

http://www.directgov.gov.uk/en/MoneyTaxAndBenefits/Taxes/SelfAssessmentYourTaxReturn/DG_4017116

people who get rent or income from land and property in the UK (but if you are an employee and this income is less than £2,500 a year a tax return may not be necessary)

Gorgeous_George

But that is 'income' and not 'profit'.

GG

macaque_2

silvercar wrote: »

That's scaremongering, here is the statement from the IR:

http://www.hmrc.gov.uk/workingtogether/news/times-buy-to-let-shock.htm

"Media reports on HMRC approach to landlords
Many of you will have seen recent media coverage relating to HMRC and it’s approach to landlords and you may be receiving queries from your clients about this.
By way of background, HMRC is not planning a tax crackdown in the way implied in the media reports. HMRC is planning to take a concerted approach to helping landlords of all descriptions (not just in the buy to let market) to understand and comply with their tax obligations in what they recognise to be a complex area. In taking this approach the explicit presumption will be that the majority of landlords want to make a correct return but that many may need some help to understand exactly how to do so. The approach, which was outlined to agent representatives in a recent workshop, will focus on giving landlords improved access to guidance and support so that they can understand how to calculate their own tax liabilities and, where there is tax to pay, using the lightest possible touch to ensure that the correct amount is paid."

Starting points:

http://www.directgov.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/index.htm

http://www.directgov.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435

Scare mongering my foot. Making a mistake over a small amount of tax is one thing but if you knowingly fail to declare significant income or gains you face prison. I wonder how many people have sold second properties without declaring it on their tax returns.

http://news.bbc.co.uk/2/hi/uk_news/england/staffordshire/4708922.stm

http://news.bbc.co.uk/2/hi/uk_news/northern_ireland/6199920.stm

http://news.bbc.co.uk/2/hi/uk_news/england/southern_counties/4799267.stm

beingjdc

silvercar wrote: »

Why, its your equity. Do with it what you want.

Yes, but giving people tax relief on borrowing they use to buy an asset in order to set up a business - that's one thing. It's a system based on the overwhelming majority of businesses where borrowing will either be initial working capital, or will purchase a depreciating asset.

Giving people further tax relief so they can extract money due to market fluctuations that have driven the asset up in value, that's just a free tax dodge and an incentive to the kind of imprudent borrowing you identified with your CGT point.