Mortgage Tax Relief

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    Mortgage Tax Relief

    In 1990 I bought my first home for £30,000.
    In 2002 I bought another house which is now my primary residence.
    Also in 2002 the first house became a buy to let house.
    The first house's value in 2002 was £60,000.
    It's value now is £100,000.
    I have a mortgage on the property for £20,000.

    My question is, how much can I increase my mortgage to and still claim tax relief on all of the mortgage against rental income.

    Is it the original price I paid for the house (£30,000) or the value of the property when I started to let it out (£60,000).
    Thanks

    #2
    Originally posted by Jezzer View Post
    In 1990 I bought my first home for £30,000.
    In 2002 I bought another house which is now my primary residence.
    Also in 2002 the first house became a buy to let house.
    The first house's value in 2002 was £60,000.
    It's value now is £100,000.
    I have a mortgage on the property for £20,000.

    My question is, how much can I increase my mortgage to and still claim tax relief on all of the mortgage against rental income.

    Is it the original price I paid for the house (£30,000) or the value of the property when I started to let it out (£60,000).
    Thanks
    It is the value when the property enters your lettings business, ie the value in 2002 of £60,000. Any re-mortgage advance upto this amount could be used for any purpose, including private purpose.

    Any excess could be eligible if it is used for a qualifying purpose, eg, use it towards the purchase of another buy to let property or on capital improvements to any of your let properties.

    Ramnik
    Private advice is available for a fee by sending a private message.

    Comment


      #3
      hi

      sorry to comment on another's post

      i also did this except i started letting last year, but i didnt have the property valued at the time


      bought in 1993 for £24k
      value in 2005 at start of letting = £??
      now worth £137k


      how much could i remortgage upto and still get ta relief


      thanking you

      Comment


        #4
        Thanks for your reply

        One further question. If I was to use the money from the remortgage to buy a property abroad, could I then also use the interest payments to offset against the rental income from abroad.
        It would seem that I would then be using the same mortgage interest to offset against two different rental incomes. I'm sure the Inland Revenue would have something to stop this, but it's worth asking anyway.

        Comment


          #5
          Originally posted by Jezzer View Post
          Thanks for your reply

          One further question. If I was to use the money from the remortgage to buy a property abroad, could I then also use the interest payments to offset against the rental income from abroad.

          It would seem that I would then be using the same mortgage interest to offset against two different rental incomes. I'm sure the Inland Revenue would have something to stop this, but it's worth asking anyway.
          If you use the re-mortgage proceeds to buy another UK buy to let, the interest is still allowable as an expense of your UK lettings business. In this case there is no restriction on the amount of re-mortgage you can raise.

          If the re-mortgage proceeds is used to buy an overseas buy to let, you can decide whether to claim the interest as an expense of your UK lettings business or your Overseas lettings business, but not both. This is because you are paying interest only once and you are restricted to claiming only what you have actually paid.

          Ramnik
          Private advice is available for a fee by sending a private message.

          Comment


            #6
            Originally posted by hmmmmmm View Post
            hi

            sorry to comment on another's post

            i also did this except i started letting last year, but i didnt have the property valued at the time


            bought in 1993 for £24k
            value in 2005 at start of letting = £??
            now worth £137k

            how much could i remortgage upto and still get ta relief

            thanking you
            The answer is the same as before, the value at the date the property entered your lettings business.

            You could search various websites giving you past sale values of similar properties in the same area where your property is located. You could also instruct an estate agent who could give you an opinion of what it would have been valued at in 2005.

            Under self-assessment, you have to decide yourself what the answer is. It is upto you how you find the answer. But you have to be able to substantiate the basis for your answer if questioned by the tax inspector. If the answer is negligent, you may end up being charged penalties and interest.

            Ramnik
            Private advice is available for a fee by sending a private message.

            Comment


              #7
              Thanks again for your reply and great advice.

              You said
              If the re-mortgage proceeds is used to buy an overseas buy to let, you can decide whether to claim the interest as an expense of your UK lettings business or your Overseas lettings business, but not both.

              Can I do this on a year by year basis to reduce tax. For example doing it 50:50 one year and then 30:70 the next and so on.
              Or do I need to decide what proportion is for what and stick with it.

              Comment


                #8
                Originally posted by Jezzer View Post
                Thanks again for your reply and great advice.

                You said
                If the re-mortgage proceeds is used to buy an overseas buy to let, you can decide whether to claim the interest as an expense of your UK lettings business or your Overseas lettings business, but not both.

                Can I do this on a year by year basis to reduce tax. For example doing it 50:50 one year and then 30:70 the next and so on.
                Or do I need to decide what proportion is for what and stick with it.
                No, you cannot do this.

                You have to decide whether the mortgage belongs to your UK lettings business or your overseas lettings business.

                Ramnik
                Private advice is available for a fee by sending a private message.

                Comment


                  #9
                  Does the whole of the loan have to go to one or the other or could I use say 50% of the re-mortgage for the uk property and 50% for the overseas property (or any other % split).

                  I realise I would have to decide this upfront and be very clear about what proportion of the loan is for what.

                  Thanks again

                  Comment


                    #10
                    Originally posted by Jezzer View Post
                    Does the whole of the loan have to go to one or the other or could I use say 50% of the re-mortgage for the uk property and 50% for the overseas property (or any other % split).

                    I realise I would have to decide this upfront and be very clear about what proportion of the loan is for what.

                    Thanks again
                    I suppose there is no reason why the mortgage cannot be split between the two.

                    You should ideally show this on the mortgage application so that it is evident what the re-mortgage is for.

                    Any loan allocated to overseas property may be wasted if the overseas tax is higher than the UK tax on overseas income in any case, in which case there is no further UK tax liability on overseas rental income.

                    It is generally better to withdraw the equity in the property as personal monies and then use this as deposits to buy other investment properties. Balance of the purchase cost is to be raised on the security of the property which is being bought.

                    It is recommended that you should obtain professional and financial advice and not to rely on any of the above at face value.

                    Ramnik
                    Private advice is available for a fee by sending a private message.

                    Comment


                      #11
                      At the moment overseas income tax isn't a concern for me as the country I am buying in doesn't charge any income tax on rental income, so I only need to worry about the uk income tax.

                      Hopefully this will be the last question.
                      If I was to remortgage my property from 20K to 60K (40K extra) and make it clear in the application that 10K of this was for the purchase of an overseas property.
                      This would mean that I could claim the mortgage payments for 50K as tax relief on my uk property and claim mortgage payments of 10K as tax relief against the overseas property.
                      As we agreed earlier that the maximum mortgage tax relief on my uk buy to let property was 60K would this mean that at a later date I could re-mortgage for an additional 10K and claim tax releief on this against my UK buy to let.

                      Comment


                        #12
                        Originally posted by Jezzer View Post
                        At the moment overseas income tax isn't a concern for me as the country I am buying in doesn't charge any income tax on rental income, so I only need to worry about the uk income tax.

                        Hopefully this will be the last question.
                        If I was to remortgage my property from 20K to 60K (40K extra) and make it clear in the application that 10K of this was for the purchase of an overseas property.
                        This would mean that I could claim the mortgage payments for 50K as tax relief on my uk property and claim mortgage payments of 10K as tax relief against the overseas property.

                        As we agreed earlier that the maximum mortgage tax relief on my uk buy to let property was 60K would this mean that at a later date I could re-mortgage for an additional 10K and claim tax relief on this against my UK buy to let.
                        I think this should be acceptable.

                        But as I said before, you should not rely on these replies and it is essential that you obtain professional advice before proceeding.
                        Private advice is available for a fee by sending a private message.

                        Comment

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