Mortgage Interest relief

[gillyfleur]

Am I right in thinking that if someone buys a property to let out using a combination of cash and a mortgage against their main residence (rather than a buy to let mortgage on the rental property) that they can still claim the mortgage interest as an expense against income for tax purposes ? many thanks

 

[RAL]

Am I right in thinking that if someone buys a property to let out using a combination of cash and a mortgage against their main residence (rather than a buy to let mortgage on the rental property) that they can still claim the mortgage interest as an expense against income for tax purposes ? many thanks

You can offset the interest expenses. However, check the mortgage conditions, as you need to inform the lenders if you let out the property.

 

[UKSBD]

You can offset the interest expenses. However, check the mortgage conditions, as you need to inform the lenders if you let out the property.

I assume the OP is talking about remortging the property they live in to
raise funds to buy a property to let.
i.e.
there will be no mortgage on the property they let out.

I very much doubt you could get the tax relief if the mortgage isn't on the
property being let, but would be interested to here if different as I am
just about to do the same thing.

 

[RAL]

I assume the OP is talking about remortging the property they live in to
raise funds to buy a property to let.
i.e.
there will be no mortgage on the property they let out.

I very much doubt you could get the tax relief if the mortgage isn't on the
property being let, but would be interested to here if different as I am
just about to do the same thing.

It is still deductible as long as the loan taken out to buy the property. If you bought the property by cash then you can not offset interest on your private residence property. However you can remortgage the rented property and raise the fund upto the value of a property when first let out.

 

[RAL]

Also you may need to inform the purpose of remortgaging the main residence i.e. why do you need finance.

 

[Ray_Stewart]

It is quite common to re-mortgage your own home to fund the purchase of another property to rent out. The interest you pay on that loan, or portion of the loan if you added to your existing mortgage, is allowable against rental income from that property.

It means the new rental property has no tie and can be used to help fund further puchases of property as prices rise.

 

[UKSBD]

However you can remortgage the rented property and raise the fund upto the value of a property when first let out.

Yes, but once you do that you get stung for about an extra 2% interest rate.

I think the OP wants to get a mortgage on existing house (at a lower rate
because it isn't buy to let), but is asking if she can then offset the intrest
payments againgst the income from the buy to let property.
I doubt this is allowed.

 

[UKSBD]

It is quite common to re-mortgage your own home to fund the purchase of another property to rent out. The interest you pay on that loan, or portion of the loan if you added to your existing mortgage, is allowable against rental income from that property.

It means the new rental property has no tie and can be used to help fund further puchases of property as prices rise.

Are you saying you can get a remortgage on the home you are living in,
then use that cash to buy a property to rent out, and still get tax relief
on the mortgage on the home you are living in?

 

[Williams lester]

Are you saying you can get a remortgage on the home you are living in,
then use that cash to buy a property to rent out, and still get tax relief
on the mortgage on the home you are living in?

Yes, The mortgage is just a loan secured against a property. So, if the purpose of the mortgage loan is to purchase a rental property, then the interest on this would be an allowable expense for tax purposes.

 

[iridessa]

Yes...we have done this before and the interest payable on the mortage is an allowable deduction against the rental income of the property being rented out.

 

[UKSBD]

Thanks,
What is the relief actualy on?

Using this hypothetical example, interest rate 2%, ammount borrowed
£100,000, income from rent of other property £10,000, tax 20%

You borrow £100,000 so pay £2,000 interest
You rent out at £10,000 so pay £2,000 in tax
Does the £2,000 just cancel each other out, or do you knock £2,000 of
the income you make from the rent , bringing it down to £8,000 and are
then taxed on that (i.e. you pay £1,600 tax)?

 

[Williams lester]

Thanks,
What is the relief actualy on?

Using this hypothetical example, interest rate 2%, ammount borrowed
£100,000, income from rent of other property £10,000, tax 20%

You borrow £100,000 so pay £2,000 interest
You rent out at £10,000 so pay £2,000 in tax
Does the £2,000 just cancel each other out, or do you knock £2,000 of
the income you make from the rent , bringing it down to £8,000 and are
then taxed on that (i.e. you pay £1,600 tax)?

The £2,000 in your example would be an expense against the income of £10,000, therefore reducing the profit to £8,000. The tax bill would depend on your other sources of income.

 

[gillyfleur]

Thanks for the replies. To be clear I should have said " can tax relief be claimed on the portion of mortgage interest applicable to the rental property if the mortgage is raised against the main residence". If they already have a mortgage on their own house the interest on that portion absolutely wouldn't be claimable just in case anyone has misinterpreted any of the replies and thinks they've found a way of getting their own interest relieved against tax !!
I think this is the case but I just want to be clear before I tell someone it's OK. They do want to raise the money against their own home as it will be cheaper to borrow than on a buy to let mortgage and they only need to borrow approx. £30K. I will be telling them they need to make it clear why they want to borrow the money against their house etc. The consensus seems to be that it is allowable against rental income.

A further question on a slightly different tack then: if you borrow the money against your own home for a buy to let but then don't or can't let it for some reason can you still claim tax relief on the interest element as a loss for tax purposes ? or do you have to have income ?

 

[David Griffiths]

A further question on a slightly different tack then: if you borrow the money against your own home for a buy to let but then don't or can't let it for some reason can you still claim tax relief on the interest element as a loss for tax purposes ? or do you have to have income ?

Losses on rental properties can only be carried forward against future rental profits. They cannot be set against general income in the same way as trading losses.

If you have more than one rental property, then the interest is included in the total costs for the year and effectively relieved against rents on the other properties.