Remortgage Interest Allowable Expense

by Readers Question

14:57 PM, 16th June 2014
About 5 years ago

Remortgage Interest Allowable Expense

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Remortgage Interest Allowable Expense

I’m currently remortgaging my residential property to release equity with the sole purpose of using the funds to act as deposits for future BTLs. Remortgage Interest Allowable Expense

I understand that the interest element on any BTL mortgage can be offset against rental income, but does this extend to the interest on my remortgage?

Thanks

James



Comments

Mark Alexander

14:58 PM, 16th June 2014
About 5 years ago

Hi James

The answer is YES, but only if you can prove what the money was used for if you are ever challenged by HMRC. Therefore, it’s important that you keep a good paper trail.

If you need an introduction to a very good accountant please let me know.
.

DC

18:55 PM, 16th June 2014
About 5 years ago

Reply to the comment left by "Mark Alexander" at "16/06/2014 - 14:58":

Mark, just to clarify, are you saying that interest payable on money raised on your residential mortgage, if used to invest in rental property, can be offset against income tax payable on rental income?

If so, how do you apportion what is interest in respect of the residential property and what is interest apportioned to the BTL purchase?

I've never heard of this before so I'm interested to hear more.

Mark Alexander

19:31 PM, 16th June 2014
About 5 years ago

Reply to the comment left by "DC " at "16/06/2014 - 18:55":

It doesn't matter how you borrow the money so long as you can prove it was used to invest into your BTL portfolio. If you took an unsecured loan or even borrowed money of a credit card the same principles would apply.

The important part is the audit trail and the timing.l For example, you would really struggle if you were to say that your personal mortgage taken out 10 years ago was used as the deposits on BTL properties which you purchased years later.

However, if you take an increased mortgage now and use the money to invest into deposits on BTL property then yes, you could offset the interest on that element of new debt against the rental profits.

If in doubt speak to a professional tax adviser such as Neil Barlow - see >>> http://www.property118.com/member/?id=452
.

DC

20:21 PM, 16th June 2014
About 5 years ago

Reply to the comment left by "Mark Alexander" at "16/06/2014 - 19:31":

I just hadn't considered that scenario, but I understand what you are saying and see that in effect it could easily be a way of raising a 100% mortgage to obtain a BTL.

Inadvertently, it possibly may even circumnavigate the loan cover criteria as well, but the icing on the cake is the ability to offset maximum interest against income tax.

LVW4

16:10 PM, 18th June 2014
About 5 years ago

I'm doing the same thing right now. I am moving to Bath, but don't want to have to sell my London house. I am taking a BTL re-mortgage on my home, which I will rent out for the foreseeable future. The mortgage interest will be offset against rental income.

I will use the loan to finance additional properties and am considering if I can raise BTL mortgages for each new property, which I can offset against the rental income.

Mark Edwards

16:40 PM, 18th June 2014
About 5 years ago

Hi James, if you want the funds you raise to go as far as possible then it is worth bearing in mind that I can access 85% loan to value buy to let products. This would mean you need only put in a 15% deposit on each new purchase.

Feel free to contact me via my Member profile (click on the link on my name), for a full range of rates and products currently available.

DC

17:24 PM, 18th June 2014
About 5 years ago

Reply to the comment left by "Lou Valdini" at "18/06/2014 - 16:10":

That's not quite the same.

James is talking about remortgaging on a residential mortgage and keeping it as a residential mortgage, not converting his residential to permission to let or a let to buy as I assume you are talking about.

Parminder Panesar

6:22 AM, 22nd June 2014
About 5 years ago

Mark

My wife and Moved home 4 years ago. We decided to keep our old house and rent it out. We raised a mortgage on the new house as it worked our t cheaper than a buy to let on the old. The only reason we have mortgage on the new house is so em could keep the old one and rent it out. Can we claim the tax relief on the interest. We rented the old house almost immediately after we moved in the new one.

Mark Alexander

8:58 AM, 22nd June 2014
About 5 years ago

Reply to the comment left by "Parminder Panesar" at "22/06/2014 - 06:22":

Hi Parminder

The interest rate may have been lower but is the overall cost still lower when you add back the tax you should be paying on your rental profits? If so, then your strategy makes sense.

To answer your question though, NO, you cannot claim the tax relief on your new residential mortgage because that money has not been released by or for your rental business.

HOWEVER, if you now take a mortgage on your rental property and draw that money out of your rental business to pay off your personal mortgage then you will be able to offset the mortgage interest on your rental property against your rental profits, subject to the mortgage amount not exceeding the value of the property at the time you first decided to let it out.

I hope that helps.
.

Parminder Panesar

15:53 PM, 22nd June 2014
About 5 years ago

Reply to the comment left by "Mark Alexander" at "16/06/2014 - 19:31":

Mark

The overall cost is lower as getting a BTL mortgage would have been around 5% whereas I was able to secure a 1.89% mortgage on the new house.

The only reason I took a mortgage on the home was so I could keep and rent out the old house. Is that not sufficient to show that it was for the rental business. I discussed this with a broker at the time and after going through the figures we opted to take the mortgage on the new house.

At present I am financially better off with the mortgage on the new house but if rates increase it may be worthwhile getting a 5 year fixed BTL.

Thanks

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