I am just about to buy a flat to let, but am slightly confused by the mortgage/tax situation.
It is being suggested by my IFA that I take out a mortgage on my existing (mortgage-free) home to fund the purchase of a buy-to-let property. My accountant, and friends who also have buy-to-let properties, have told me that if I do so, I will not be able to claim the interest payments against the rental income - I would only be able to do so if I took out a specific buy-to-let mortgage, not secured against my own property.
People's views seem to differ on this. I'd be grateful for any guidance from people on this group.
You can offset interest on the buy to let mortgage on the property, and not from your own home. However, it may be possible for the increased mortgage from your own home to be treated as a "qualifying loan" which means you can deduct interest in your tax return. I didn't think that property was a valid investment, but I'm not sure, check the inland revenue website
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- If you can get a qualifying loan, this may be better as the rate of interest you'll pay on your personal mortgage is likely to be less than the Buy to let. Hope this is helpful, posting is for information purposes only and does not constitute advice.
I'm not surprised; this is one of the questions that causes many people to tear their hair out. The answer is yes, the interest is allowable.
The following is from a respected accountant and landlord on the TMF forum who has looked into the issue in depth. It should give links to the relevant tax inspector manuals. IR150 is also good to have - it's large so ring up the local tax office for a free paper copy.
btw - why are you considering BTL at the top of the market ?
As a form of pension, I suppose. I am buying a flat in a large block (in which I also happen to live) in south-west London for a very good price. After a little work, it will be eminently rentable and will provide an element of security for our old age - which in my case, I have to tell you, is creeping on! Hopefully, I may buy more - I know someone in this block who owns 7 flats, ranging from 3-beds to studios...and he's doing very nicely.
All landlords and owners that bought more than a year or 2 ago are doing nicely, that includes me. It doesn't really tell you much - it's what value for money you can get from property now compared with other investments.
You might want to browse the previous posts on BTL here
Here's the way I see things
There are general links and info. on my website although you've already found the 2 best forums for BTL, here and TMF. It might be a good idea to post your figures on TMF as there are many London landlords who can give them the once over.
Having read the links, it's clear I need professional advice on the question that's coming, but what's your opinion?
I have a property in my name. Our family lives in it and our mortgage is around 25% . My wife has a BTL flat in her maiden name, with mortgage of around 40%. As I have an offset mortgage, and she has savings, I would like to re-mortgage my house, and pay off her mortgage with the extra. She can then move her savings over to offset part of the cost. Can she claim tax relief on the increased part of the mortgage, which is for the BTL flat? She is currently claiming back the interest as it's a clearly defined loan for the property.
Interesting one. I'd say the answer is yes, because what she would really be doing (for tax purposes) is simply changing lenders for her business loan. Instead of the loan being secured on the rental property, it will be secured on your house. Even though as far as your lender is concerned,
*she* is not borrowing from *them*, she is rather borrowing from *you*, and you, in turn, are borrowing from your lender. Since you're a nice chap and not charging her more than your lender is charging you, you will not need to pay income tax on the interest you receive from her (since you're making no profit in your "money lending business"). But she is nevertheless still borrowing, and for the purpose of finacing her BTL flat, and therefore her loan interest continues to be an allowable expense.
But you need to make up a proper paper trail to show that specific sums of money are flowing from her rental business accounts to the lender. For example, you should agree what proportion of the nominal loan debt is yours and how much is hers. The interest should be split the same way.
Moving her savings into the same offset account is an unrelated transaction, but (if you so agree, and you should) you should consider them as "paying off" *your* part of the loan. That way, her share of the loan shrinks more slowly and it leaves a greater proportion of the loan interest on her plate, as it were, thus maximising tax relief.
Sound advice. Too many people go into investments based on sentiment - the number of people I know who bought tech stocks at the top of the dot.com boom who are just now jumping into buy2let is frightening. A buy2let flat is going to tie up a lot of IanF.s pension pot so he's exposing his pension to a large risk.
"Bricks 'n' Mortar" the buy2letter cry, always worth something. Not true, in Manchester, where plush city center flats fetch 300K there are estates of Coronation Street style terraces not that far away that are completely boarded up... the properties fetch a couple of grand at auction, not even the value of building land.
I recall about 40 years ago, when an Estate Agent friend of mine in Rochdale was busy buying terraces in non-salubrious parts of the Greater Manchester area on about 5 years' rental as the buying price.
He knew that the life was finite and he also knew that the land would be worth something when the time came for re-development. You need the freehold, of course.
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