More on tax allowances

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

    More on tax allowances

    I would like to pick up on some advice regarding tax allowances offered by chartered tax accountant. He stated on a previous thread:

    [I]Also don't forget that you can borrow up to the value of the property at the beginning of the letting (get a valuation and keep it safe) and claim tax relief for the loan interest despite what you spend the money on. (Perhaps clearing a spanish mortgage on which there may be no tax relief on the interest. Care re different interest rates etc).[/I]

    Can anyone please tell me if my scenario will be covered by this?

    I bought a council flat some time ago for £14K, I remortgaged my own home for the purchase. The flat value at the beginning of the year was £70K, when I first let it out. I remortgaged the flat for a deposit on another BTL and I am about to complete on another. This will still leave me about £30K equity in the flat. Does this mean I can still draw down more equity on the flat and spend it on whatever I like and still claim tax relief on the interest I will pay. ( I have interest only mortgages on all 3 properties).

    Mick

    #2
    As well as the point I raised yesterday, there is also an alternative test in order to claim tax relief for loan interest. If the purpose of the loan is to finance a new rental property, then the interest on that loan will be allowable.

    The overiding factor must be that the interest you claim on loans in respect of a particular property must not relate to more than the value of the property at the commencement of letting.

    You said that you re-mortgaged your own home to fund the deposit on the new property. You do not say how much the original mortgage was for, but lets say the full £14k. This should be allowable and you should keep any documents which support the audit trail showing the purpose of the loan.

    If you then re-mortgaged the rental property for a new buy to let deposit, the interest on that loan should also be allowable, either on the same basis as the first loan, or based on the purpose test. You do not say how much the second loan was for but if it were for, say, £40k (leaving the £30k equity you mention), you would be safe to borrow a further £16k for any purpose, but I don't think I'd risk any more without the risk it would be disallowed. You could of course borrow as much as they will lend and claim tax relief for the interest, providing it was to purchase a new rental property.

    Hope this is helpful. I recommend you take advice in advance of borrowing and seek advice from a Chartered Tax Adviser if possible.





    --------------------------------------------------------------------------
    The above is for the information of readers. Whilst every effort is made to ensure accuracy, information contained may not be comprehensive and recipients should not act upon it without seeking professional advice.
    --------------------------------------------------------------------------

    Comment


      #3
      many thanks CTA,

      I realise now that I was too vague in my question, but I think you have answered it anyway.

      Thanks again.

      mick

      Comment


        #4
        Originally posted by smythie View Post
        I would like to pick up on some advice regarding tax allowances offered by chartered tax accountant. He stated on a previous thread:

        [I]Also don't forget that you can borrow up to the value of the property at the beginning of the letting (get a valuation and keep it safe) and claim tax relief for the loan interest despite what you spend the money on. (Perhaps clearing a spanish mortgage on which there may be no tax relief on the interest. Care re different interest rates etc).[/I]

        Can anyone please tell me if my scenario will be covered by this?

        I bought a council flat some time ago for £14K, I remortgaged my own home for the purchase. The flat value at the beginning of the year was £70K, when I first let it out. I remortgaged the flat for a deposit on another BTL and I am about to complete on another. This will still leave me about £30K equity in the flat. Does this mean I can still draw down more equity on the flat and spend it on whatever I like and still claim tax relief on the interest I will pay. ( I have interest only mortgages on all 3 properties).

        Mick


        Chartered Tax Adviser states: ''You do not say how much the second loan was for but if it were for, say, £40k (leaving the £30k equity you mention), you would be safe to borrow a further £16k for any purpose, but I don't think I'd risk any more without the risk it would be disallowed.''

        The inference is that you could release the £30,000 equity in the property. Of this he/she regards £16,000 as safe and the other £14,000 risky as far as the tax relief on interest is concerned.

        I am of the opinion that at best you are able to borrow only £16,000. You could only release the other £14,000 if this is to replace the original mortgage secured on your home in the same amount.

        I would also add that even the £16,000 is dependent on what the flat was used for between buying and commencement of letting.

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

        Comment


          #5
          What if the additional £14k was for a deposit on a new buy to let property ?

          Comment


            #6
            Originally posted by Chartered Tax Adviser View Post
            What if the additional £14k was for a deposit on a new buy to let property ?
            In that case there is no restriction whatsoever regardless of how much he borrows or what this is secured against. In this case, he could borrow the full £30,000 (the remaining equity in the property) and he would be entitled to claim the full interest on the whole of the £70,000 mortgage as well as the £14,000 secured on his home plus of course all mortgages secured on the other BTL properties themselves.

            But the querist asked about using the money to use for personal purposes.

            He asked:

            ''This will still leave me about £30K equity in the flat. Does this mean I can still draw down more equity on the flat and spend it on whatever I like and still claim tax relief on the interest I will pay. ( I have interest only mortgages on all 3 properties).''

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

            Comment

            Latest Activity

            Collapse

            • Let Property Campaign.
              by armour
              Hi all,

              A friend of mine has been renting out a flat since 2004 and has not declared any of the income to HMRC in all that time.

              She wants to come clean and pay the accumulated income tax she owes by making a non-prompted disclosure using the Let Property Campaign system....
              13-09-2021, 13:45 PM
            • Reply to Let Property Campaign.
              by theartfullodger
              See..
              https://www.landlordzone.co.uk/news/...erty-campaign/

              Well done HMRC..

              None of my business, and obviously not in anyway a criticism of anybody, but If I had had a friend who I found out had been fiddling tax for 16 years they'd no longer be my friend.
              ...
              18-09-2021, 11:46 AM
            • Reply to Let Property Campaign.
              by armour
              Fair enough. Thanks for your advice. It is on cash basis.

              I guess it would only save her 50 odd quid anyway, maybe less than £80 once the fine and interest is added. I guess she'll have to swallow that.
              Once again, thanks JP and Gordon for your help.
              Chris
              18-09-2021, 09:07 AM
            • Overseas Landlords
              by Santa Fe
              I'm from UK but live overseas and recently discovered that I should be registered as an overseas landlord. I've done a bit of research on what it involves and it seems a bit of a headache - tenants have to fill out forms and pay tax from their rent direct to HMRC. If anyone here is registered as an...
              16-09-2021, 16:44 PM
            • Reply to Overseas Landlords
              by Santa Fe
              Boletus, thank you.
              17-09-2021, 18:37 PM
            • Reply to Let Property Campaign.
              by jpkeates
              armour - Sorry, I don't know.
              It might depend on whether you're accounting on the cash basis (in which case I suspect not) or the accrual basis (when it's possible).

              But it's not something I ever got involved with when the W&T allowance existed, and all of the practical guidance...
              17-09-2021, 11:43 AM
            • Reply to Let Property Campaign.
              by armour
              Thanks JP, that's clear. I'll put the bathroom in with the income tax then. I guess it's much of a muchness anyway as the associated reduction in interest and fine will probably equal out.

              I have one last question, if you'd be so kind.

              During the year she had to make the eviction,...
              17-09-2021, 09:18 AM
            • Reply to Overseas Landlords
              by boletus
              You fill out this form requesting to have rental income without deduction of tax and pay it yourself;

              https://www.gov.uk/government/public...dividuals-nrl1
              16-09-2021, 17:26 PM
            • Reply to Let Property Campaign.
              by jpkeates
              The 10% was for furnishings, so built in stuff should be ok to claim.
              The bathroom refurb depends on what was done if it was simply a replacement, it's maintenance, if it was a significant upgrade, it's likely to be part capital/part maintenance.
              If it's a new bathroom, it's probably ca...
              16-09-2021, 08:37 AM
            • Reply to Let Property Campaign.
              by armour
              Seems pretty clear there JP. I'll go ahead and alter my calculations

              One more thing, My friend had a bathroom refurb and a built in oven and hob replaced during the period when the flat was let furnished. I'm pretty sure that these costs can be detucted in addition to the 10% W&T, but...
              15-09-2021, 14:06 PM
            Working...
            X