Allowable expenses for landlords?

Vincenzo

silvercar wrote: »

You can claim the mortgage interest as an allowable expense for mortgage amounts upto the value of the property when you first let it. Often there will be a mortgage on the rental property of say 80% of its initial value and the remaining 20% could be attributed to a portion of the mortgage on your residential home.

I don't see the value in swapping mortgages from one property to another. Interest rates would normally be higher on a BTL than residential. As far as security goes, if you were repossessed on a BTL the sale price didn't clear the mortgage you can be sure the lender will come looking for other assets you may have eg your home and seek a charging order!

An excellent point on the interest apportionment!

Bungarm2001

silvercar wrote: »

You can claim the mortgage interest as an allowable expense for mortgage amounts upto the value of the property when you first let it.
Often there will be a mortgage on the rental property of say 80% of its initial value and the remaining 20% could be attributed to a portion of the mortgage on your residential home.

What if this is not the case. Supposing (as someone else posted here) the main residence was remortgaged and a BTL property was bought entirely from these funds? In other words, capital was raised on a main residence by mortgaging using a resi mortgage that was subsequently used to buy a BTL? Am I right in understanding that the interest payments on the resi mortgage would then be tax deductable against the income from the BTL property?

In your scenario above, are you saying that an 80% BTL mortgage on a BTL property would be deductable, but the 20% resi mortgage on the main residence used to help purchase the BTL property would not be?

Sorry, I'm confused.

It's been a funny week

clutton_2

my accountant told me it is the USE that the money is put to, not where it came from, that is the important point - so that funds borrowed against PPR to buy BTL are claimable.

Vincenzo

Bungarm2001 wrote: »

What if this is not the case. Supposing (as someone else posted here) the main residence was remortgaged and a BTL property was bought entirely from these funds? In other words, capital was raised on a main residence by mortgaging using a resi mortgage that was subsequently used to buy a BTL? Am I right in understanding that the interest payments on the resi mortgage would then be tax deductable against the income from the BTL property?

In your scenario above, are you saying that an 80% BTL mortgage on a BTL property would be deductable, but the 20% resi mortgage on the main residence used to help purchase the BTL property would not be?

Sorry, I'm confused.

It's been a funny week

Silvercar was saying that the residual 20% of the value of the BTL property, above and beyond the actual mortgage secured on it, could be offset against your resi mortgage.

To simplify things, it does not matter which property you borrow on. All that is important is the value of the property when you first let it. Say for arguments sake £200,000. You can offset interest on mortgages up to the value of £200,000.

mlz1413

Vincenzo wrote: »

Silvercar was saying that the residual 20% of the value of the BTL property, above and beyond the actual mortgage secured on it, could be offset against your resi mortgage.

To simplify things, it does not matter which property you borrow on. All that is important is the value of the property when you first let it. Say for arguments sake £200,000. You can offset interest on mortgages up to the value of £200,000.

the way silvercar worded this i thought it referred to the 20% being funds taken out at the same time so for the use of buying BTL property.

But the way vincenzo has worded it looks like any residential mortgage interest can be used up to the full purchase value.

the latter would be lovely but seems a bit too good to be true! could either of you clarify please?

real1314

It's relatively straightforward.

You have a home worth £200k, with a £50k mortgage. You also have £20k in savings. You're thinking of paying the £20k off your mortgage.

You decide to buy a BTL for £100k using a £80k BTL mortgage. For your deposit of £20k you will firstly use the £20k savings to pay off your own mortgage and then use the £20k available from that mortgage to fund the deposit. You don't actually have to alter the mortgage at all to do this.

If you think it through, it's no different than anyone starting a business and borrowing against their home to launch, and claiming the interest as an allowable expense.