Let to Buy Interest Tax Relief

by Readers Question

7 months ago

Let to Buy Interest Tax Relief

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Let to Buy Interest Tax Relief

This question is for the tax year 2016-2017. My wife and I did a ‘Let to Buy’ on a flat we owned. At the time, we owed 125,000 to the bank and when we took out our buy to let mortgage we increased the borrowing to 250,000.

£125,000 we used as a deposit on our new home that we live in.

When working out my tax can I claim the full tax relief on Mortgage Interest payment, Mortgage arrangement fee’s, Solicitors fee’s.

Or as half the money was used for the purchase of my home I can only claim half as tax deductible on the items above.

Also going forward will this apply in subsequent years.

Thanks

Matt

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Comments

Neil Patterson

7 months ago

Hi Matt,

The Base value of the residential property converted to a BTl will be reset to the time it became part of the rental portfolio.

Therefore, you can borrow up to the value of the property at this time and qualify for tax relief on the mortgage interest. This is obviously now subject to Section 24 mortgage interest relief restriction rules that may or may not affect you.

If you were to borrow more than the new base value in future you would then have to prove the funds were to be used for the rental business.

The above must not be construed as advice.

Robert Taylor

7 months ago

I'm not an accountant but as I understand it. If you owned a property that was already mortgaged, and you remortgaged the BTL property you can claim full tax relief on the new mortgage.
The money you released from the property is yours tax free. Also it is yours to spend how you wish. eg a new car, holiday etc, or in your case a deposit for your residential property.
I hope this helps.

Robert Taylor

7 months ago

Sorry, I missed out the solicitors fees etc. You can claim for fees for your BTL mortgage and any solicitors fees for the remortgage. You will not be able to claim for any arrangement fees or solicitors fee relating to the property you are living in.

Neil Patterson

7 months ago

You can only spend the released monies as you wish if the mortgage does not exceed the base cost. Otherwise you have to prove it was for the portfolio business purposes to get tax relief.

Robert Taylor

7 months ago

Hello Neil.
Please can you explain what you mean by "base cost".
Using this example what would be the figures.
Thank You
Robert

Mark Alexander

7 months ago

Reply to the comment left by Robert Taylor at 29/01/2018 - 17:10
Ordinarily, the base cost of a BTL property would be purchase price plus Stamp Duty plus any capitalised costs of improvements to the building.

In this case it would be the value of the property when it was first let

Robert Taylor

7 months ago

Thank you

Paul Shears

7 months ago

What if someone already had a principle private residence, and paid cash on another property vwhich they then developed and then rented out?
Could they then take out a mortgage on the property that they rented out and spend the money as they wish?

Mark Alexander

7 months ago

Reply to the comment left by Paul Shears at 30/01/2018 - 02:34
The Principal Private Residence has no bearing on the scenario you have outlined, it is a red herring

A mortgage equal to the development cost of the encumbered rental property can be raised and used for any purpose and would still be eligible for tax relief on mortgage interest, subject of course to the s24 restrictions

Paul Shears

7 months ago

OK, I was just included the principle private relevance detail for completeness and clarity.
Thanks Mark.

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