Offsetting mortgage interest against rental income

[philbatch]

Hi,
I have just purchased anothe rproperty to let and am looking for some new contacts tips etc. I have one question to ask about opffsetting your income against the interest paid on the loan each month.

I have remortgaged my own property to finance the purchase and paid cas for the new property. The mortage on our own residence is in my name but the new property is in my wifes name as I pay 40% tax and I thgought this would be the way to go.

Can I offset the rental income against this loan even though it is on my current home and in my name?

Cheers
Phil

[Ericthelobster]

Can I offset the rental income against this loan even though it is on my current home and in my name?Not sure about that - your asking in the wrong sub-forum by the way - but one useful tip might be to transfer the property into joint names, as 'Tenants in Common', owned 99% by your wife and 1% by you - that means that expenses and income are apportioned to you both in that ratio.

Once you've registered the ownership with the Land Registry as "Tenants in Common", it's a relatively simple matter to change the %'s to suit different circumstances; eg when you come to sell you'd almost certainly want to have a substantial % in your name to take advantage of your CGT allowance.

[Moderator1]

This thread has been moved from RESIDENTIAL LETTINGS to TAX.

[TaxationPete]

Interesting. You have raised equity against a property in your sole name, however the B2L in your wifes sole name may cause a problem. 'You' do not have any rental income from this property so on the surface of it 'you' can not offset the interest. What was the declared purpose on the mortgage. Ericthelobster TinC may be way forward but a robust Declaration of Trust with also address the Beneficial Ownership of the property. Although you may only own 1% you still get the full CGA on disposal. I assume this is all past tense and the deal is already done. I suggest you seek professional face to face advice on this ASAP. Regards Peter

[philbatch]

Thanks for the reply. The declaration for the loan was to purchase another propery in my wifes anme. I did this because I am a 40% tax payer and thought that the income from the rent would be taxed at my rate. I am trying to contact my solicitor as contracts have not yet been signed. Would it be beneficial to have the house ion both our names with my wife as 99% owner for rental income tax purposes.

[TaxationPete]

The declaration for the loan was to purchase another property in my wifes name. Are you sure this is what was written down. If so there may be no problem. I would contact HMRC and ask them if they are going to accept this arrangement, if positive, ask for it in writing. If your wife had been a joint owner of your home then I would not hesitate but it is the sole ownership that concerns me. Other may be along to comment on this scenario. Regards Peter

[Telometer]

On a strict technical basis I do not see how your wife has any chance to claim a deduction against rental income of a property in her name ( = "her property") for interest incurred on a loan that is in your name ( = "your loan").

The days of taxation of husband and wife together are long gone.

That said, I wonder how many people with this sort of arrangement do claim a deduction, and whether any Inspector of Taxes would ever pick up on it.

I similarly struggle to imagine any sort of strict technical basis for claiming the loan deductions if your wife is joint owner. The technical position (presumably - Jeffrey?) must be that of a partnership. Each partner receives the relevant proportion of joint income say 99%:1%; claims the relevant proportion of joint expenses say 99%:1% and claims 100% of their individual expenses. The debt to which OP refers is strictly, surely, 100% his individual debt.

Wife incurs no interest expenditure wholly & exclusively, because she incurs NO expenditure whatsoever with regard to the loan.

(Imagine: if British Land and Land Securites were to enter a 50:50 joint venture through a partnership to buy a rental property, and the funding were all to come from one partner would you really suggest that the second party could claim a deduction for the interest expense that was in fact incurred by the first party??? At least in this scenario the funding company would presumably make a recharge to the second party; with H&W there is no such opportunity as H would have taxable interest income from W but no corresponding taxable deduction against the interest income.)

Is there, in fact, a presumptive trust - which might well destroy all other assumptions? Jeffrey? http://www.hmrc.gov.uk/manuals/tsemmanual/tsem6263.htm