How much can I claim for on tax relief for mortgage interest payments?

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    #16
    cm00. Just to keep you straight, you do not deduct the interest from the tax bill. You deduct the interest charges from your gross rental income. Regards Peter

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      #17
      Originally posted by cm00 View Post
      Here's a further question someone might know the answer to. Let's say I don't want to be a higher rate tax payer but am close to the theshhold. If a new property I purchased is only in my name, can I allow my partner to be the landlady of the property and receive all rent money as her own salary, thus saving us money on tax because she is still a basic rate tax payer and would only pay 20%, whereas if I received the rents I would have to pay 40%. Is this allowed?
      If your partner is married to you, you'd need a deed of trust and to notify HMRC of the arrangement.

      If your partner is not married to you, and you are genuinely working as described, yes you can split the ownership and income - tax follows beneficial ownership not title.
      Should your relationship end, there's no simple way to undo the arrangement however, and HMRC may challenge the arrangement if they think it's a complete sham (but it is common enough for exactly the reasons you outline).

      Originally posted by cm00 View Post
      If interest rates rise, how much would it likely impact on a typical £350 monthly payment on an interest only mortgage? What might you expect the payment to rise to?
      It's basic maths - if you're assuming £7k income the property is going to be about £150k to buy, so you're funding about £112.5k.
      The monthly interest you pay is 105,000*(interest rate/12) so 3.5% would be just shy of £4,000 interest per annum, £328 a month.
      4.5% would be £421 a month and 5.5% would be £515 a month

      Which starts to get a bit hairy if you only get 10 or 11 months rent in a year, or need to buy a new boiler.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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        #18
        My partner is not married to me, and I intend to purchase all of the houses in my own name, she will not be on the deeds. I can just give her charge of the house as landlady, she will be receiving the rents as her own salary, paid at basic rate tax as she is below the threshhold. This will work?

        I see about the interest rates. Currently Royal bank of Scotland offers those rates, I realise the rates may go up if interest rates rise. I was thinking though, with the continued austerity the country is set to face, it seems unlikely they will rise. Also, even if they do, isn't it quite likely that rents will increase by quite a bit over the next 5 years, which will compensate for any possible rise?

        There are a few reasons I think rents will go up. Firstly we have the national living wage, £9 an hour by 2020. If wages go up, rents will probably go up too. Then there's the mortgage interest relief for higher rate tax payers is being cut. Lastly, if interest rates rise, many landlords will have to increase rents. The chance of rents going up seems high.

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          #19
          That's insanely optimistic.

          The Bank of England has says that rates will increase starting at the end of this year and probably move steadily to 2.5% at least (from 0.5% presently).
          Lenders will be encouraged to pass that on, as the interest rate rise is partially to cool the house price bubble.

          Rents don't go up at the same rate - there's no unified supply mechanism so landlords tend to rent at what is the current market rate (encouraged by letting agents who want to get properties rented not get the right rate, and depressed by the LHA rates that were set ages ago).
          It'll be a brave landlord who advertises £90 a month above the going rate.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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            #20
            Do you think it's still worth me investing into then, as a basic rate tax payer? If I was already on a high salary I'd probably not bother with it but I am well below the higher rate threshhold, could probably have three 2 bedroom properties rented out before I come near the threshhold for higher rate tax.

            In my area I aim to get two bedroom houses for 120-140k with a 25% deposit and let them for £700 rent a month each. If I go with interest only mortgages and rates rise to 1.5% I'm looking at paying £504 per month mortgage interest or £595 if rates rise to 2.5%

            2.5% would leave basically no profit and I would have to hope to gain on equity.

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              #21
              If you are the sole owner of the property the income is taxed on you not your partner. Regards Peter

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                #22
                Originally posted by cm00 View Post
                In my area I aim to get two bedroom houses for 120-140k with a 25% deposit and let them for £700 rent a month each. If I go with interest only mortgages and rates rise to 1.5% I'm looking at paying £504 per month mortgage interest or £595 if rates rise to 2.5%
                You won't be able to borrow at those rates - that's the bank of england base rate.

                You're looking at closer to 5% - but there are lower rate offers from about 3% for two years (when they revert to 5%).
                So you're already worse than your worst case.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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                  #23
                  Sorry I meant if rates rise by 1.5%, not rise to 1.5%.

                  Right now I can get a 4% mortgage and would pay about £370 a month for a £110,000 interest only mortgage. Initial rate is 2.5%. If rates rise by 1.5% my payments would rise to £504. If rates rise by 2.5% my payments would rise to £595.

                  Here is the deal here: http://www.moneysupermarket.com/mort...3&goal=MOR_BTL Second one down, Royal Bank of Scotland.

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