Outright purchase or continue to mortgage?

[h4k4n]

Hi all,

We have a personal mortgage for property that we now let to a local council. The lender has got wind of this and is insisting that the T&C's of our mortgage prevent us from letting this property and insist we take the mortgage elsewhere.

We are currently considering doing this but as there is such a small amount left on this mortgage - £34000 - we are also considering paying this amount off by using available capital from our home mortgage (currently at £75k).

I am completely ignorant of how our accountant deals with our tax returns for the property we let but I am led to believe that interest from the mortgage can be offset against rental income. With the outstanding amount being so low, should we just pay the £34k off in one hit or are we better off continuing to mortgage this amount. I'd ask out accountant but he's out of the country for a while...!

Thanks

H

[Tax Accountant]

Hi all,

We have a personal mortgage for property that we now let to a local council. The lender has got wind of this and is insisting that the T&C's of our mortgage prevent us from letting this property and insist we take the mortgage elsewhere.

We are currently considering doing this but as there is such a small amount left on this mortgage - £34000 - we are also considering paying this amount off by using available capital from our home mortgage (currently at £75k).

I am completely ignorant of how our accountant deals with our tax returns for the property we let but I am led to believe that interest from the mortgage can be offset against rental income. With the outstanding amount being so low, should we just pay the £34k off in one hit or are we better off continuing to mortgage this amount. I'd ask out accountant but he's out of the country for a while...!

Thanks

H
How long has your accountant emigrated for? Or is it that this query is too trivial to bother him or that he may charge a fee?

Never mind.

Interest on let property is allowable as a deduction in calculating your lettings profit on which you pay tax. On the other hand, there is no tax relief on interest on loan used to buy your home.

However, if you add the £34,000 to the mortgage on your home, interest on the £34,000 will still be eligible to reduce your lettings profit. Therefore, there is no reason for tax purposes why you shouldn't do as you suggest.

You should also take this opportunity to look around and consider remortgaging your home loan to a different lender to secure better rate of interest and at the same time to add the £34,000 to your existing home loan.

Alternatively, you should consider transferring both existing loans and secure the total on the let property. If you do this, you will be able to claim interest on a loan upto the value of the let property on the date it was first let. This way, you will be able to get tax relief on a higher loan than otherwise. However, the additional savings will need to be considered against the higher rate of interest which is normally charged on a let property.

Ramnik

[h4k4n]

Many thank for your advice!

BTW, my accountant is one of the best. I called him yesterday to ask him the very same question only to have his wife tell me he had to fly out to India as his father had died. I guess in the circumstances this question probably would have been a little trivial to hassle him for an answer.

Thanks again.

H

[Tax Accountant]

Many thank for your advice!

BTW, my accountant is one of the best. I called him yesterday to ask him the very same question only to have his wife tell me he had to fly out to India as his father had died. I guess in the circumstances this question probably would have been a little trivial to hassle him for an answer.

Thanks again.

H
Pass my condolences to your accountant.

Also ask him if you could add your £75,000 home loan to your let property mortgage and thereby get tax relief on interest on the home mortgage of £75,000.

Ramnik