Mortgage interest tax relief

lukekelly19

I am buying a flat and may rent it out. I understand I can get tax relief on the mortgage interest. However, I haven't taken out a mortgage for the flat - I have just borrowed more money on my exisiting house. This borrowed money is therefore not linked to the flat. Could I still claim relief on the interest for this borrowing?

El_Torro

As I understand it no, you can't. The debt needs to be linked to your rental property, which a residential mortgage isn't. 

Also you can only get tax relief on debt that the property had when you started renting it out. Which means that if you get a buy to let mortgage further down the line you can't claim tax relief on the interest.

There are ways around it but the rules are quite strict, and you need to be able to justify the borrowing. See more details here: https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

dinosaur66

you are only allowed to claim the 20% mortgage intrest tax relief with hmrc if the property you are renting out has a buy to let mortgage on /

you have remortged ? the house you live in to partially fianance the flat investment -you will not be able to claim mortgage tax relief on this.

swings and roundabouts as buy to let mortgages charge more intrest than your remortgaging will cost you

silvercar

It’s the purpose of the loan that counts, not where (or indeed if) it is secured. You could have raised some of the money on an unsecured loan, it would still count. 

Not uncommon to have a BTL mortgage on the property that is rented and fund the deposit by increasing or taking a mortgage on your residential property. Both would be allowable.

There is a restriction limiting the amount of the mortgage to the value of the property when first let, and mortgage interest relief is restricted to basic rate only (and therefore stated separately from other expenses on your tax return).

anselld

I would agree with silvercar, however in this case the OP has stated they “might rent it out”.  So the purpose when the loan was taken is not clearly to establish a rental business.  Not sure how HMRC would view if there was a substantial period of non-rental between the loan and first let unless it was for refurbished etc.

lukekelly19

silvercar said:

It’s the purpose of the loan that counts, not where (or indeed if) it is secured. You could have raised some of the money on an unsecured loan, it would still count. 

Not uncommon to have a BTL mortgage on the property that is rented and fund the deposit by increasing or taking a mortgage on your residential property. Both would be allowable.

There is a restriction limiting the amount of the mortgage to the value of the property when first let, and mortgage interest relief is restricted to basic rate only (and therefore stated separately from other expenses on your tax return).

Thanks. This seems to fit with the phrasing on the tax form.

silvercar

anselld said:

I would agree with silvercar, however in this case the OP has stated they “might rent it out”.  So the purpose when the loan was taken is not clearly to establish a rental business.  Not sure how HMRC would view if there was a substantial period of non-rental between the loan and first let unless it was for refurbished etc.

Many people let out what was their home, it’s generally accepted that it’s the value at that point, and any borrowing of that amount that may already exist is fine. In other words, the borrowing that exists is of the rental because otherwise the owner could sell and repay the loan. So keeping the mortgage going is because the property is going to be rented.