Tax on Dependent Relative Mortgage

Haydenlm1

_Penny_Dreadful said:

As far as I know NatWest doesn’t offer regulated BTL mortgages which is what you’d need to let to family. I’m not sure what this “dependent relative” mortgage is (is that what it’s actually called) but it sounds an awful lot like one of NatWest’s 2nd Residential Property mortgages that they will do up to a max of 90% LTV.  

If you family is then giving you the money to make the mortgages payments then that does sound like rental income to me which will be subject to income tax as others have said. 

What is the disadvantage to the max of 90% LTV ? what does that mean please?

I have just spoken to my mortgage advisor and he advised me that there shouldn't be any payable tax / no need to declare as if my mortgage is £500 and my parents pay me £500 , im not making any profits,
Is that correct?

I am not doubting anything you guys are saying at all, im just being told different things here!

macman

Because, as you have already been told, you can only claim tax relief on the interest component of your mortgage, not against any capital repayment.
You seem to be under the impression that a £500 mortgage outgoing just cancels out a £500 rental income. You are making no allowance for maintenance, repairs, buildings insurance, EPC, GSC, EICR, possible LA licensing fee...and dozens of other possible costs.
We have no idea of your other income, or how that affects your total tax liability.
Your mortgage advisor wants your business to earn his commission: he is not an accountant or a tax advisor.

SDLT_Geek

I seem to have slipped into some kind of parallel (but arguably preferable) universe where mortgage interest can be fully set off against rent.  That has all changed in the UK, with the ability to set off interest being eroded from 2020.  There is a piece on it here: https://uklandlordtax.co.uk/allowable-expenses-against-rental-income/
Perhaps the problem is that the people who know about these things are on the Cutting Tax board.  Perhaps OP is better posting there for some better answers.

SDLT_Geek

Haydenlm1 said:

_Penny_Dreadful said:

As far as I know NatWest doesn’t offer regulated BTL mortgages which is what you’d need to let to family. I’m not sure what this “dependent relative” mortgage is (is that what it’s actually called) but it sounds an awful lot like one of NatWest’s 2nd Residential Property mortgages that they will do up to a max of 90% LTV.  

If you family is then giving you the money to make the mortgages payments then that does sound like rental income to me which will be subject to income tax as others have said. 

What is the disadvantage to the max of 90% LTV ? what does that mean please?

I have just spoken to my mortgage advisor and he advised me that there shouldn't be any payable tax / no need to declare as if my mortgage is £500 and my parents pay me £500 , im not making any profits,
Is that correct?

I am not doubting anything you guys are saying at all, im just being told different things here!

It is incorrect.  Even if all of the £500 mortgage is for interest, it cannot all be set off against the rent.

sheramber

Assuming no allowable expenses- parents cover all maintenance costs, council tax etc.

If your mortgage payment is interest only ( you have not advised either way)  the  tax relief you get is  restricted to 500 x20% =  100.

£500 is added to your total and taxed due on your total income calculated @  20%, 40% etc whatever you are liable at on your total income. 

You then deduct the tax relief on interest - £100.

If the £500 includes capital repayment as well, then your tax relief is limited to 20%  of the interest element only. so will be less than £100.

Your  mortgage advisor is not a tax specialist and is giving you wrong information.

SDLT_Geek

sheramber said:

Assuming no allowable expenses- parents cover all maintenance costs, council tax etc.

If your mortgage payment is interest only ( you have not advised either way)  the  tax relief you get is  restricted to 500 x20% =  100.

£500 is added to your total and taxed due on your total income calculated @  20%, 40% etc whatever you are liable at on your total income. 

You then deduct the tax relief on interest - £100.

If the £500 includes capital repayment as well, then your tax relief is limited to 20%  of the interest element only. so will be less than £100.

Your  mortgage advisor is not a tax specialist and is giving you wrong information.

Hooray, some sense on this thread!  Well done.

Haydenlm1

sheramber said:

Assuming no allowable expenses- parents cover all maintenance costs, council tax etc.

If your mortgage payment is interest only ( you have not advised either way)  the  tax relief you get is  restricted to 500 x20% =  100.

£500 is added to your total and taxed due on your total income calculated @  20%, 40% etc whatever you are liable at on your total income. 

You then deduct the tax relief on interest - £100.

If the £500 includes capital repayment as well, then your tax relief is limited to 20%  of the interest element only. so will be less than £100.

Your  mortgage advisor is not a tax specialist and is giving you wrong information.

Right okay! 
So just for simplicities sake, lets say I am on around 40k and my parents pay the mortgage which is £550 a month.
How much tax will I be paying?

Again, im really sorry if these are dumb question but I am clueless with those things and trying to help my parents, but wanting to understand this better,

Thank you for all your help guys i really appreciate it

RAS

How much of the mortgage payment is interest and how much is a capital repayment, for the purposes of replying to your query? 

You do realise that IRL, a normal repayment mortgage means you start mostly paying interest, and over the years end up mostly paying off capital, so the tax burden would increase?