Deducting interest on someone else’s mortgage?
Is it illegal to deduct mortgage interest on someone else’s mortgage, or have I been badly advised? An experienced and mature tax adviser suggested that my unmarried partner should gift me 1% ownership of her HMO into a bare trust, in order that I may legitimately deduct all the interest on the HMO’s mortgage with no SDLT on the 1% gift.
We jointly run a small portfolio, with some houses owned in her name and others jointly. The HMO was bought in her name only, and remains solely in her name at the Land Registry; the HMO mortgage is solely in her name too. All the HMO’s revenue accrues to me.
I was advised that the 1% bare trust gave me the basis for deducting 100% of the mortgage interest.
Is this legit? Aggressive tax tactics are not our style, but our adviser assured us it was an established move. We’ve done it for 5+ years. I worry that HMRC might disagree. If they did, presumably the penalty rises as time goes by.
I’d be grateful if any suitably qualified readers on here would give their view. If it’s not legit, what next?
Rigsby
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Member Since March 2019 - Comments: 73
5:12 PM, 23rd April 2021, About 5 years ago
your adviser would be liable and should carry insurance to that fact !
Member Since July 2013 - Comments: 1264 - Articles: 1
7:49 PM, 23rd April 2021, About 5 years ago
Why is your partner not claiming the deduction themselves? And why are you taking the revenue if it’s their property?
Member Since March 2016 - Comments: 43
7:37 AM, 24th April 2021, About 5 years ago
Reply to the comment left by Puzzler at 23/04/2021 – 19:49
Out of the two of us, she was the higher rate tax payer at the time the advice was given, and I was the lower rate.
Member Since March 2016 - Comments: 43
7:47 AM, 24th April 2021, About 5 years ago
Reply to the comment left by paul kaye at 23/04/2021 – 17:12
Thanks for your input Paul. You might be right, but may I ask if you’re a tax advisor or in a related profession? I ask only to help me qualify your input, rather than question it.
Member Since January 2020 - Comments: 1102 - Articles: 1
9:21 AM, 24th April 2021, About 5 years ago
It sounds to me as though you and your partner need a complete overhaul of the structure of your business by somebody who is in possession of all the relevant information, rather than just the few random details that you have mentioned so far.
Member Since April 2017 - Comments: 12
2:38 PM, 1st May 2021, About 5 years ago
He’s right. You can only deduct mortgage interest if you are on the mortgage. You can split shares by trust deed. If you want to deduct mortgage interest you need to do a transfer of equity and remortgage.