Tax Relief when Remortgaging

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    Tax Relief when Remortgaging

    We purchased a BTL in my wife's sole name (CGT reasons) using monies raised
    thru a remortgage of our house (= the purchase price of the BTL) This was the cheapest way to raise the money and we consulted the Tax office who said this was permissable citing BIM45685 as the ruling to guide us by.

    The deeds to our house are in joint names - therefore so is the re-mortgage. We want to offset the tax on the rental income which will be solely in my wife's name by ALL of the mortgage interest paid and not just 50% of it (remember its a joint mortgage). In other words - this whole business gets reported on my Wife's tax return and none of it on mine. Can it be done?
    We consulted the Tax Office who did not know the answer to this.
    Has anyone out there done this- or know the answer to it?

    #2
    You say you bought in your wife's name due to CGT reasons. Surely, CGT comes into play when you sell the property, which presumably is not in the near future. Presumably you meant to say for Income Tax purposes because you are a higher rate taxpayer and therefore you want all rental income to be assessed to your wife. But then, after all the loan interest and all other expense deductions, is there much left to be assessed to Income Tax ?

    I would say that it is always better to buy in joint names rather than in one name only. You could buy as tenants in common whereby you could specify each joint-owner's share, eg 1% to you and 99% to your wife. This way, you will allocate most of the income to your wife. However, you will leave a lot of options open for the future changes in your circumstances. It is not too difficult to change the sharing ratios at a later date.

    Rental of properties is now classed as lettings business and thus is taxed according to the rules applicable to businesses.

    The eligibility criteria is the use of the loan monies and not the asset on which it is secured. Thus, if you used the whole of the re-mortgage advance (in joint names) for the purchase of the Buy TO Let property (in wife's name only), all the interest is eligible for deduction against the rental income.

    Hope this is helpful.
    Private advice is available for a fee by sending a private message.

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      #3
      Thanks- the reason for buying solely in my wife's name is that she has accrued Capital Losses which will outweigh any Capital Gains. So it is for CGT reasons that the BTL is solely in her name. So she is the sole Landlord.
      If she can only claim 50% of the interest paid on the joint remortgage of our home against the rental income then she will pay tax. If she can claim 100% or 99% of the remortgage then she will not. So the key question is can she claim the whole 100% since the loan has been used entirely to buy the BTL.

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        #4
        It is my understanding that the Revenue are not particularly interested in how the finance was raised but rather what it was used for. The allowable amount of interest to set would be the cost of 100% of buy to let property + incidental aquisition costs/entire mortgage * interest on mortgage. There is a reference in the inland revenue manuals which I do not have on me but I will find out for you. It is also advisable to keep a balance sheet to support the calculations made.

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          #5
          The Inland Revenue manuals does say, as already stated in my original reply, that it is the use of the funds which is important and not the property on which the loan is secured. However, it does not specifically say that this is still the case where the security asset and the BTL asset are owned by different people.

          Therefore, it still leaves a question mark on what the position would be where, for example, the BTL asset is owned by one couple and the security asset is owned by say a family friend.

          Having said this, I would still say that the querist is able to claim the whole of the interest against the BTL property owned by the wife alone.

          Sandy also advises the need to maintain a Balance Sheet. This really boils down to keeping a log of dates and amounts of costs which are to be claimed in the calculation of Capital Gains Tax. For example, the purchase price, related legal costs and disbursements, valuation fees and improvement expenditure which have not been claimed as expenses against rental income. This total is the amount upto which you are able to borrow in the future and claim the interest against rental income.

          If you have bought a property as your main residence say 25 years ago for £10,000 and decide to let it from today when the value is say £200,000, you could remortgage it and still claim interest on the full loan upto its value at the commencement of letting, ie, £200,000. In this case, it is irrelevant what you use the remortgage advance for. Even a lot of professional advisors are not aware of this.
          Private advice is available for a fee by sending a private message.

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            #6
            I have a similar situation with a suttle difference.
            I was given a property 10 years ago by my parents, which has gone from 10K to now being worth 80K.
            This property has been let for the last 10 years without a mortgage.
            I am about to buy a residential property to live in myself and am thinking of releasing some of the equity in the rental property to help fund the purchace of the residential property.
            My question is, "Can I get a straightforward mortgage, secured on my new house and as Friston did, claim the interest payments of 80K against my rental income or do I need to have two seperate mortgages?"

            Comment


              #7
              In my earlier post, I stated that one can borrow only upto the value of the property at the time letting commenced. If your letting commenced 10 years ago, and the value then was £10,000, you could borrow only upto £10,000. Any interest on the excess borrowing will not be eligible for tax relief.

              It is also important to note that the loans must be secured on the let property in question.
              Private advice is available for a fee by sending a private message.

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