Basic question about mortgage tax credit on rental property

caveman8006

I have a small remaining mortgage on my main residence (jointly owned with my basic rate tax paying wife) leaving about 90% unused valuation. I am looking to buy a 50% share in a flat on the coast with my brother which we can rent out at about £1000 pcm (ie £500 pcm each). I was going to put our half in my wife's name so that we are only subject to basic rate tax on any profits. My basic question is that if I use up 10-15% of my main residence valuation mortgage valuation potential to raise (cheap) money to complete the buy to let transaction (and associated Stamp duty costs /refurb), will the some or all of interest on, say 115% of the value of our half of the flat purchase be eligible for tax relief, or must we have a dedicated BTL mortgage on the rental property itself? If the latter, are we likely to pay a significantly higher interest rate, as we would be looking to take a mortgage on as much of the purchase price as is most efficient for tax purposes...it seems likely that there will be a trade-off between having to pay a higher mortgage rate as the LTV ratio rises above 60% vs the increase tax relief we can apply against our rental profits...

kingstreet

You can (currently) offset the interest on any loan used to further your business regardless of what it is secured on.

Be careful though. In the next few years what/how interest you can offset is being reduced/limited.

anselld

You can only claim the interest on capital up to the value of your share when the property is first let.

Not sure where you get 115% from.

anselld

caveman8006 wrote: »

.it seems likely that there will be a trade-off between having to pay a higher mortgage rate as the LTV ratio rises above 60% vs the increase tax relief we can apply against our rental profits...

It is never a good idea to increase your costs in order to increase tax relief.... tail wagging the dog!

caveman8006

OK. So if we borrow an extra, say £140k, secured on our jointly owned main residence to go towards a (50% share of a) flat that is costing us (technically my wife only) £125k purchase price + £5k Stamp Duty and £10k refurb, how much of the £140k additional mortgage borrowing can my wife get a 20% tax credit for against the tax payable on her rental income on her share of the new flat? Presumably it is limited to a maximum of £125k isn't it?

dimbo61

Why not employ an accountant to help you with this.
One who deals in BTL.
You can buy a property with up to 4 people on the deeds ( I think )
The costs ( fee ) of the accountant are tax deductible.
Refurb costs ( before renting ) and fees associated with buying are also tax deductible.
Joint or tenants in common ? Shares in the property
Business plan and finding a lender happy to give you a BTL mortgage or loan ? Maybe a whole of market mortgage broker who deals in BTL