Tax office correct? Released equity mortgage interest against rental?

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    Tax office correct? Released equity mortgage interest against rental?

    Now, I have checked this with two separate technical people at the tax office, BUT I would still like a practical okay from you guys before I go ahead?

    1. I am selling a £150k property paying off the £50k mortgage then using £100k balance to buy a new property outright which I will then rent. I have to buy cash as it's a repossesion and the bank want a good position buyer.

    2. Immediately *AFTER* the cash purchase I will immediately transfer (bring back) the £50k mortgage to the new property (thereby reclaiming redemption penalties paid). Bank i fine with me renting.

    3. The tax office is adamant that the interest of this £50k can be offset against the rental I will receive. I also asked if this was the case whether I transferred the mortgage before or after I started renting and was told yes I can transfer equity anytime. The rules that apply are the same as section 45650 of the Business income Manual.

    4. My intention is to rent to cover costs only (to my bankrupt brother) and the tax office said it was okay to rent below market value (although) I could not pass any losses to the next year, but that's fine as i'll never make a profit. I will therefore rent at mortgage interest + ground rent/services charges etc, thereby pay no tax.

    5. I was told I do not need to do a tax return *if* I am not making a profit/loss as I am a PAYE earner. I'm not sure about this so i'll doulbe check it to be sure.

    5. The property value will likely increase as I got a good deal on it. For CGT I will need to pay this at teh appropriate time as although I am living in the property a couple of days a week, my understanding is that this is not enough to warrant putting it as my main home (and obtaining the 36mont exemption) - the tax office said I could by teh way but I think they are wrong on this having read around here.

    I hope there are no glaring holes in this! If anyone could point out any big mistakes I would really apreciate it before I go ahead. I'll run this past a tax professional but wanted a head-start so I won't need to start from scratch and pay the professional a forune an at-least contact him with a plan )

    Taxationpete - highly appreciate reading your posts for my and others issue. Without those like you I for one would be a headless chicken


    Yes, the interest should be deductible as you are re-financing your Capital Account.

    However, as you are living there, you will need to restrict all the expenses on an reasonable basis.


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