Splitting income: how much interest can we offset?

Collapse
X
  • Filter
  • Time
  • Show
Clear All
new posts

    Splitting income: how much interest can we offset?

    Hi

    I have two questions:

    1.If my husband receives half the rental income and I receive half, and say for example each half is below £2500, does that mean no tax return is required?

    2.If we increase the mortgage (as we are investing in another property which we will live in ourselves) can the interest for the full amount of the extended mortgage be offset against? Someone said to me you could only offset against the interest on the original mortage amount, so that it's related to what you actually paid for the house. I hadn't ever heard about that rule before.

    Thank you!

    #2
    You must declare the income on your tax return and you must file a tax return each year even if you have no tax to pay. You can off set the whole amount of the interest plus insurance, repairs and agents fees ect. You will see all this on the tax form. You do a tax form each declaring half of the income.

    Comment


      #3
      1. No. Well, possibly. But even then you have to notify HMRC of the income, and frankly submitting a tax return is far and away the easiest way to do this.

      2. You are restricted to being able to offset interest on the proportion of loan that relates to the value of the house when first let out.

      Comment


        #4
        Thank you both.

        So, on the second question, the value of the house at the moment is about £200,000. The current mortgage is about £50,000 but we want to increase it to £150,000. We were hoping that this would then mean we could offset a greater amount against rent. However someone suggested we should call our tax office as he thought that we can only offset the amount of the mortgage that relates to the original purchase price, which was around £70,000. However from what you've said, it is the current value of the house that matters, in which case what we are intending to do would be OK seeing as the £150k mortgage is less than the current house value.

        Has anyone heard of this rule saying that the mortgage value must relate to the original house purchase? We are living in the house now, and can remortgage before we start the let. I don't want to ring the tax office and have them on my back if there isn't actually anything to be done other than the usual tax return.

        Thank you!

        Comment


          #5
          If it is worth 200K you can increase the loan to 200K (not of course that anyone would lend that amount but in theory you can) before you let it out and then you can offset the whole 200K. So long as you get the new mortgage before you let it out you can offset the whole amount. This is because it is a business loan in effect.
          Last edited by Mrs J; 17-03-2011, 09:53 AM. Reason: Got better info

          Comment


            #6
            Originally posted by Mrs J View Post
            If it is worth 200K you can increase the loan to 200K (not of course that anyone would lend that amount but in theory you can) before you let it out and then you can offset the whole 200K. So long as you get the new mortgage before you let it out you can offset the whole amount. This is because it is a business loan in effect.
            I respectfully disagree with this, not sure if you've got the same fact pattern that I have.

            As I understand it, the OP has a BTL and wants to remortgage against it and thus increase the borrowing on it in order to fund the purchase of a home.

            The OP bought the BTL for £70,000 and this is when it was introduced to the lettings business. The capital account of the lettings business is therefore £70,000. The OP can borrow more than £70,000 if they wish and secure it against the BTL, because of course the current value of the property is £200,000. But for tax purposes, the OP will only get an interest deduction on the interest paid on the first £70,000 of borrowing, since that is what capital the OP introduced to the lettings business when it commenced.

            See BIM45700 for further advice/source.

            Hope this helps.
            I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

            That also means I cannot share in any profits from any decisions made!

            Comment


              #7
              Not sure on the fact pattern now!

              You've got the answer if it is currently a BTL anyway!
              I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

              That also means I cannot share in any profits from any decisions made!

              Comment


                #8
                Hi

                Thank you.

                To clarify, the house was bought for £70k (in about 1998) and has been owned by and lived in by my husband since that time (then I moved in at a later stage). It has never been let out since he purchased it. We are looking to let it out sometime later this year.

                So I guess that changes the answer? Can we offset in theory up to the amount of interest on a remortgage so £150k (or in theory £200k as that is the house value now)?

                Thanks again!

                Comment


                  #9
                  The problem is you started with a question about rental income as though you were already renting the property out.
                  As this is your PRR then you can remortgage to what ever value you want and then let it out. The interest will be deductible. However, you need permission from the provider for the change of use and they may want to go for a B2L at a much higher rate than you presently have.
                  Do you both actually own the property as it used to be in just your husbands name. This would have an effect on who declares the rental income and later on effect Letting Relief. Read HS283 on the HMRC web site.

                  Regards Peter

                  Comment


                    #10
                    1. If you're still living there, then almost certainly put it into both your names so you can both have letting relief when you eventually sell.

                    2. You can offset interest charged on (the proportion of) a mortgage of up to 200k.

                    3. It does not matter when, in the future, you take on that 200k mortgage - so long as 200k is the value when you first let it out.

                    Comment


                      #11
                      Thank you for the fantastic advice.

                      At the moment, the house deeds are just in my husband's name, as is the mortgage. So we'll definitely look at adding me on - I think that can be done through Land Registry for the deeds.

                      As for me, I own the house we will be moving to - and the mortgage there is in my name. Our idea was to transfer the mortgage there, which is about £100k, over to the house to be rented, to make it £150k mortgage on what will be the rental property.

                      However, from what I've read online, we could potentially leave things as they are and offset the interest on each mortgage (interest on the £50k mortgage at the rented property and £100k on the property we live in). From some of the forums I've read, this is perfectly reasonable, as the mortgage on the house we will live in ourselves can be counted as a business loan that enables us to live in that house and rent out the other. What I'm not sure of is the fact that both mortgages are already in place i.e. we're not having to remortage in order to live there and rent out our current house.

                      I hope I'm making sense!

                      If that is too tenous, then we may have to take the hit on the early exit fee on the mortgage, so that we can move money about before we move.

                      Just trying to do everything above board but not pay more tax than we need to!

                      Thanks again!

                      Comment


                        #12
                        Originally posted by Boodle-Oodle View Post
                        Thank you for the fantastic advice.

                        At the moment, the house deeds are just in my husband's name, as is the mortgage. So we'll definitely look at adding me on - I think that can be done through Land Registry for the deeds.
                        Just so long as you are living there properly at the time of the transfer to you. If you do it AFTER you move out it will be a bad idea.

                        As for me, I own the house we will be moving to - and the mortgage there is in my name. Our idea was to transfer the mortgage there, which is about £100k, over to the house to be rented, to make it £150k mortgage on what will be the rental property.

                        If that is too tenous, then we may have to take the hit on the early exit fee on the mortgage, so that we can move money about before we move.
                        You will have to move it all to the one property; sorry. You cannot leave things as they are.

                        With regard to your property: when did you buy it, how long have you lived there (dates), what did it cost, what is it worth? And how long do you intend to live there?

                        Comment


                          #13
                          Telometer is leading you down the right lines, and I agree that you can't just leave things the way they are. Reason being is although you can offset interest from loans on your own home, it is only in certain circumstances, and the circumstances you describe do not allow you to take a deduction.

                          Can I just also point out that it may 'cost' you more to have all your borrowing against the BTL. Yes, you get a tax deduction, but if the cost of the interest on the BTL less the tax shield is more than the interest rate on your home loan then you are incurring more cost = less money in your pocket. Just because you are getting a 'tax saving' it doesn't necessary equate to a 'cash saving'.

                          Here's the formula:

                          Home loan interest rate < (BTL interest rate x tax rate) = Costs you money to have all borrowing secured on BTL.
                          Home loan interest rate > (BTL interest rate x tax rate) = Saves you money to have all borrowing secured on BTL.
                          This is different to:
                          Transfer mortgage to BTL = Pay less tax
                          Do not transfer mortgage to BTL = Pay more tax

                          There are other factors to consider other than tax and profit, but this post purely addresses these two considerations.
                          I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

                          That also means I cannot share in any profits from any decisions made!

                          Comment


                            #14
                            Originally posted by Boodle-Oodle View Post
                            At the moment, the house deeds are just in my husband's name, as is the mortgage. So we'll definitely look at adding me on - I think that can be done through Land Registry for the deeds.
                            CONV. reply
                            It's not as simple as that- if the mortgage will continue, H will need mortgagee's consent for the Transfer.
                            JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                            1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                            2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                            3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                            4. *- Contact info: click on my name (blue-highlight link).

                            Comment


                              #15
                              Whereas, Jeffrey, presumably they CAN use a trust deed to achieve the same effect without M's consent.

                              Comment

                              Latest Activity

                              Collapse

                              • BTL property, wife's property or both our property?
                                Loftmonster
                                Hello,

                                First off appologies for joining and going straight in with a question. I promise i will try my best to positively contribute in the future.

                                My wife and i are in the process of remortging our home as a BTL and purchasing a new home to live in. The BTL is in my wife's...
                                13-08-2019, 10:11 AM
                              • Reply to BTL property, wife's property or both our property?
                                OneSmallStep
                                I would remortgage the property as a joint mortgage. Depending on your wife's income it might open up more lenders. It is not clear how much LTV etc..

                                Make sure your solicitor registers you as "Tenants In Common".

                                Then, set up a declaration of trust to split the...
                                23-08-2019, 13:56 PM
                              • CGT Historic Costs
                                Always Problems
                                I am compiling a list of expenses which I spent over the 30 years where I ran a business at a Commercial Property which included land which I recently sold.
                                The premises had been rented out by my father for 20 years before that
                                Can I list the earlier expenses I incurred in that I spent £700...
                                23-08-2019, 09:21 AM
                              • Reply to CGT Historic Costs
                                Always Problems
                                Yes you are right, The £700 did include the £130 fee the Valuer Charged for the Probate Valuation,.and the rest was dealing with other matters.
                                There is an additional bill of £280 for dealing with the Notice to Quit and negotiations for tenant compensation with the tenants solicitor
                                23-08-2019, 09:55 AM
                              • Reply to CGT Historic Costs
                                AndrewDod
                                Only capital expenditure -- fighting a right of way would be a capital expense, serving a notice to quit would not. Initial land registration would be OK, the right of way dispute depends on details.

                                £700 30 years ago would be a terrific solicitor's bill to serve a notice (are you sure...
                                23-08-2019, 09:32 AM
                              • Trading allowance and my tax bill
                                Jazzert100
                                My two sons look after my properties whilst I am on holiday.
                                If I make a payement to each of them of £1000 each for this service can I declare this as an expense on my tax return?
                                In addition can they take the money and not declare it under the trader's allowance.............
                                ...
                                01-08-2019, 14:25 PM
                              • Reply to Trading allowance and my tax bill
                                Jazzert100
                                Hi Boletus, can you give away a bit more information on how you have used this?

                                Thanks

                                J...
                                23-08-2019, 08:22 AM
                              • Form 17 and associated evidence
                                akumaram
                                Hi all,

                                I have been going thru posts on this forum for last couple of days for the issue I am facing. Scenario at my end is as below:
                                - Me and my wife are owning a BTL property for last 10 months.
                                - At the time of registration of property, we have provided 90:10 allocation between...
                                18-08-2019, 11:54 AM
                              • Reply to Form 17 and associated evidence
                                Gordon999
                                I suugest you visit the Land Registry Online website ( avoid fake website ) and pay £3 by credit card to down load a copyof the property title for your property.

                                It should show the property is in joint names and it may show tenants in common and 90:10 ratio..

                                If the information...
                                20-08-2019, 19:28 PM
                              • Reply to Form 17 and associated evidence
                                akumaram
                                How to go about for a deed? Is that something my solicitor should provide? Will he charge me anything extra?
                                20-08-2019, 18:19 PM
                              Working...
                              X