Using main residence to raise mortgage to fund joint buy-to-let purchase

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    Using main residence to raise mortgage to fund joint buy-to-let purchase

    My wife and I have a small remaining mortgage on our main residence (she is a basic rate tax payer with plenty of headroom; I am a 45% payer) leaving about 90% unused valuation. We are looking to buy a 50% share in a flat on the coast with my brother which we can rent out at about £1000 pcm (ie £500 pcm each). We were going to put our half in my wife's name so that we are only subject to basic rate tax on any profits. My basic question is if we borrow an extra, say £140k, secured on our jointly owned main residence to go towards a (50% share of a) flat that is costing us (technically my wife only) £125k purchase price + £5k Stamp Duty and £10k refurb, how much of the £140k additional mortgage borrowing can my wife get a 20% tax credit for against the tax payable on her rental income on her share of the new flat? Presumably it is limited to a maximum of £125k. But is there a problem if the mortgage interest on the additional loan is paid jointly by the 2 of us?

    #2
    You need an accountant (or family solicitor) to work out the best structure for this.
    You might find that changing the ownership structure of your residential home produces a more tax effective mechanism.
    But the calculation is subject to all kinds of variables and it's not easy to give an off the cut answer - and it might be that the extra complication costs more than can be saved in the short term.

    Without a proper structure in place, your wife would be able to use 50% of the interest against the income (subject to the new restriction being phased in).
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment

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    • Reply to Caught out by changes to Capital Gains Tax
      by jpkeates
      You have to make the return to tell HMRC there is no tax to pay, if that's the case.
      There is no option not to tell HMRC....
      09-12-2021, 09:58 AM
    • Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      I appreciate 'ignorance' is no excuse, however there are some mitigating factors, i.e. due to illness etc.

      1. Previous family home rented out - terrible tenants - left owing rent, bad repairs etc. [usual story for some] subsequently property not let for 2 years for a number of reasons while...
      06-12-2021, 13:51 PM
    • Reply to Caught out by changes to Capital Gains Tax
      by Gordon999
      I think Andrew is correct .

      You start with 1/3 interest ( in 1982 valued at £6500 ? ) plus 1/6 interest from parent1 ( valued at £20K ?) plus 1/2 interest from parent 2 ( valued at £60K ? ). This probably takes your total entry cost to around £40K.

      Your total capital...
      09-12-2021, 09:47 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      Hi Andrew
      First of all I've got an initial appointment to speak to an accountant on Friday!

      Can I just check where you write ' ...at death 1/6th of the value of the whole would have been deemed to pass to you for CGT purposes as the survivors would share the whole'.

      Does...
      08-12-2021, 18:02 PM
    • Reply to Caught out by changes to Capital Gains Tax
      by jpkeates
      Even if probate wasn't mandatory, it would probably have been useful.
      08-12-2021, 13:44 PM
    • Reply to Caught out by changes to Capital Gains Tax
      by AndrewDod
      Yes this would be the case if it was jointly owned (not as tenants in common). The situation would be that at death 1/6th of the value of the whole would have been deemed to pass to you (for CGT purposes), as the survivors would share the whole.

      So for the 3 periods you would be taken...
      08-12-2021, 12:51 PM
    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      jpkeates
      There was no estate as such, property jointly owned - they were both retired at time of purchase living on small pensions, hence I bought with them so they could stay in the home they'd been renting from council from early 1950s to March 1982 at time of purchase. And I paid for the initial...
      08-12-2021, 10:50 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by jpkeates
      I don't know the historic thresholds, but it's bizarre that there's no probate for both of your parents, their estate has to be tiny for that to be possible nowadays.
      It's probably too late for HMRC to do anything about that, but that process sets the values for CGT calculations later on, so it's...
      08-12-2021, 10:28 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      Morning Andrew
      Thanks for your response early this morning and clarifying I have to make three separate calculations [the split wasn't clear on the CGT calculator].
      I understand the query on the value but this is an ex council house on a council estate [I feel I have to defend it here as...
      08-12-2021, 08:45 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by AndrewDod
      As gordon indicates you need to consider it in three entirely separate parts, each have their own gain and calculation --

      The part YOU owned before Death 1
      The part YOU owned between Death 1 and Death 2
      The part you owned after Death 2

      Based on the values you give...
      08-12-2021, 05:52 AM
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