tax responsibility and allowable expenses

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    tax responsibility and allowable expenses

    Hello, wondering if anyone can help.

    Firstly, my husband and I are joint owners of our rental property but I heard that we can change things so the tax is based on my income alone. Is this true? If so how can I go about arranging this. I earn alot less than my husband.

    Secondly, if we are getting a remortgage on the house we live in to pay off a chunk of the mortgage on the rental property. Would the interest of that loan be an allowable expense?

    Thanks

    #2
    If you are the landlord and your husband isn't, the income would be yours.
    It becomes a little more complex if it's paid into a joint account.

    Essentially, tax is paid on beneficial income, so if your husband enjoys the results of the income, it's really his income as well.
    However, that rarely crops up in real life (and an accountant would be able to give the same advice backed by an insurance policy!)

    The downside is expenses,
    You can claim the interest on a residential mortgage taken out to fund your BTL property (as long as that's all it's for), but your husbands half won't be allowable against your income.

    You can create a simple trust arrangement to properly vary the proportions of ownership, which allows you to allow the interest expenses in the same proportion.
    A solicitor needs to be involved, but it's a very routine task that pretty much any family solicitor would treat as bread and butter (like conveyancing or preparing a will).
    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


      #3
      Q1. if you are given tax return SA211 2019 to complete , then read the section 6.1 ( property let jointly ) ,

      Q2. No, its too late. It only allowable if you had use the money raised from house to buy the property.

      Comment


        #4
        Originally posted by Gordon999 View Post
        Q2. No, its too late. It only allowable if you had use the money raised from house to buy the property.
        I bow to your superior knowledge (as always).

        Could you point me at some reason why, because I would have thought that it would be allowable?
        It's essentially the same as a business remortgage.
        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


          #5
          Originally posted by jpkeates View Post
          I bow to your superior knowledge (as always).

          Could you point me at some reason why, because I would have thought that it would be allowable?
          It's essentially the same as a business remortgage.
          jpk,

          I think you really are " THE ONE " with superior knowledge on tax matters by being able to respond to a far wider range of questions.

          Replying to your question, my thinking ( and I could be wrong ) is :

          When you claim mortgage interest on the BTL as an expense against rental income,, it is allowed because the BTL property is part of your rental business ,

          Your own home is not part of the rental business and so the mortgage interest paid on the home property is not a justifiable expense.

          However if you finance the purchase of BTL by a deposit , which is obtained by mortgaging your home just days before purchase of BTL , then deposit loan is provably linked to the financing of BTL purchase and the interest on deposit loan can be justifiable as an expense.

          Comment


            #6
            It's interesting, then.

            It took me a lot of research and persuasion to accept that a residential loan could ever be allowable as solely and exclusively for a BTL purchase.
            I was obviously wrong, because it's quite common, but my reasoning was that the money is extracted from the residential equity and repaid (presumably) from income received as rent. Which means it's not actually (exclusively) part of the business, the money is just that, money and the mortgage interest repayment comes from income received from the business, not from the business itself (it's more like paying something from wages than the business paying it directly).

            Because this is an investment business, however, the personal/business divide is so grey that the expense is clearly allowed (even if only on the basis that we know HMRC allows it).

            So my issue is why is a remortgage different to an original purchase?

            If the landlord can show that the loan was directly linked to the repayment of other BTL borrowing - so a new residential borrowing of £100k was shown to be used to pay down £100k of BTL mortgage, I'd say the interest was allowable.
            The only difference is the timing, which doesn't seem to change anything fundamental?

            But I have absolutely nothing to back that up.
            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


              #7
              Send an enquiry to your tax office and ask if they agree with you.

              Comment


                #8
                I never ask HMRC for tax advice, I'll ask my accountant next time I see him.
                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


                  #9
                  Originally posted by jpkeates View Post
                  Because this is an investment business, however, the personal/business divide is so grey that the expense is clearly allowed (even if only on the basis that we know HMRC allows it).

                  So my issue is why is a remortgage different to an original purchase?
                  Because it is HMRC's view. Their view is that if you take out a loan on your home to buy a BTL, then clearly the purpose of the loan is to buy a BTL. If you take out a loan on your home to pay off a BTL mortgage, then the tax-deductible BTL mortgage no longer exists and the purpose of the loan was to pay off another loan.

                  Fancy challenging them in the courts?

                  Comment


                    #10
                    Originally posted by Telometer View Post
                    Because it is HMRC's view. Their view is that if you take out a loan on your home to buy a BTL, then clearly the purpose of the loan is to buy a BTL. If you take out a loan on your home to pay off a BTL mortgage, then the tax-deductible BTL mortgage no longer exists and the purpose of the loan was to pay off another loan.

                    Fancy challenging them in the courts?
                    Never challenge anything in a court if I can help it.

                    If I take out a residential mortgage and purchase a BTL, the interest is a business expense.
                    If I take out a BTL mortgage the interest and costs are an allowable expense.
                    If I remortgage a BTL property, paying off another mortgage, the interest and costs are an allowable expense.

                    If I mortgage a residential property and pay off a BTL mortgage, that the interest and costs are not allowable sounds inconsistent, and HMRC are usually models of consistency.

                    Not that it would be easy to get a residential mortgage to pay off a BTL loan, but actually HMRC would be marginally better off, as the interest claimed would typically be lower.

                    I'm not suggesting that you (or even HMRC are wrong), I just haven't seen that policy expressed.
                    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


                      #11
                      I agree there is a level of inconsistency. If you were to mortgage your home, lend your cash to your company and the company were to pay off its BTL mortgage then the interest should be tax deductible.

                      Comment

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