Raising mortgage on buy to let up to value of property

Ed-1

2 questions based on allowable mortgage interest deductions on rental profits.

"Interest on any additional borrowing above the capital value of the property when it was brought into your letting business isn’t tax deductible."

https://www.rossmartin.co.uk/land-a-property/3000-interest-on-re-mortgaged-buy-to-let-property

1. When is a property "brought into your letting business"? Is it when it is first rented out or when it is first bought (but perhaps left empty for a while)?

2. What is meant by the "capital value of the property"? Is it is the market value of the property or what you paid for it?

00ec25

1. how long is the timing difference?

2. depends on the circumstances of its purchase eg: connected person.

Ed-1

00ec25 wrote: »

1. how long is the timing difference?

2. depends on the circumstances of its purchase eg: connected person.

1. A month since purchase

2. Purchased off non-connected person

What I'm trying to establish is whether, if you bought a property of market value £60,000 off a non-connected person in cash for £36,000 and before you rent it out decide you want to raise a mortgage on it of £60,000 (to buy another property that would not be part of the property rental business) can you only claim a mortgage interest deduction on the £36,000 or the full £60,000?

AdrianC

Ed-1 wrote: »

What I'm trying to establish is whether, if you bought a property of market value £60,000 off a non-connected person in cash for £36,000 and before you rent it out decide you want to raise a mortgage on it of £60,000, can you only claim a mortgage interest deduction on the £36,000 or the full £60,000?

So you bought this place for £36k a month ago... and are now trying to get a £60k BtL mortgage on it?

How has it gone from £36k to £80k+ value (75% LtV) in a month...?

silvercar

Why would anyone accept 36k cash for a property worth 60k?

BTL mortgages are usually a max of 75%LTV, so 45k would normally be the max mortgage you could get initially. The lender may want to know (a) why you bought it so cheaply and (b) why you are remortgaging so soon.

Ed-1

AdrianC wrote: »

So you bought this place for £36k a month ago... and are now trying to get a £60k BtL mortgage on it?

How has it gone from £36k to £80k+ value (75% LtV) in a month...?

It was bought below market value without a mortgage a month ago - the seller had inherited the place and wanted rid ASAP.

The mortgage would not be on the property in question but secured on my main residence. It would be allocated (in full or part depending on whether the capital account for the property rental business has a balance of £36k or £60k) for the purpose of "providing working capital for the business". The rest would be allocated to funding purchase of another property that would not be let commercially but to a connected person rent free so presumably would not be part of the property rental business.

Ed-1

silvercar wrote: »

Why would anyone accept 36k cash for a property worth 60k?

BTL mortgages are usually a max of 75%LTV, so 45k would normally be the max mortgage you could get initially. The lender may want to know (a) why you bought it so cheaply and (b) why you are remortgaging so soon.

See post above.

dimbo61

You need to speak to an accountant and make sure you are claiming allowable expenses.
You paid £36,000 so why do you think you can offset £60,000 ?
Why not £100,000 or £200,000 !
Dream on

Ed-1

dimbo61 wrote: »

You need to speak to an accountant and make sure you are claiming allowable expenses.
You paid £36,000 so why do you think you can offset £60,000 ?
Why not £100,000 or £200,000 !
Dream on

It does seem too good to be true. But all references I've seen are to the "capital value" of the property at the time it was introduced into the letting business.

The example here (BIM45700 example 2) uses the market value of £375k as the "capital value" even though it was bought for £125k but there is a large time gap between being bought and being rented. Who knows if £125k was the market value when it was bought. Had it been bought for less than the market value and rented straight away, does the market value still apply as the balance of the capital account, or is it the price paid?

https://www.rossmartin.co.uk/land-a-property/3000-interest-on-re-mortgaged-buy-to-let-property

pinklady21

Interesting question - you could also try posing it on the cutting tax board.

tlc678910

Aside from the technical nature of your query it would be a no because you want to raise a mortgage on your main residence in order to buy another property. The property you want to buy will not be let commercially. The property you wish to buy and the finance you wish to buy it with have nothing to do with your buy to let property so why would it affect the income or outgoings of the buy to let?

I know you can raise a mortgage on your main property to fund a buy to let and deduct the mortgage interest for this but that is not what you are doing. The mortgage is for another property. In post 3 you say you are raising a mortgage "on it" (the buy to let) but later that the mortgage would be on your main property. If it is on your main property and buys a different property (the non commercial let) I can't understand how you are relating it to the buy to let?