1 rental, 1 to live in, current account mortgage

[john_t]

Hi,

We currently live in and own almost outright a 1 bed flat worth around £250k. I want to buy a new place and rent the current one out.

My current mortgage is a Natwest One current account mortgage, which has worked very well for us and allowed us to pay off the property very quickly. I originally was going to get a BTL mortgage for the rental after taking money out for the deposit on the new place (All our money is in the current account mortgage).

I have just found out I could put the new place onto the same mortgage and have both properties in it.

I was wondering, how would I work out the interest paid just for the rental property for tax purposes?

Any ideas? I am thinking it would be impossible but maybe I can assign the percentages when I buy the new one and then effectively split the payments for tax purposes?

[TaxationPete]

Firstly you need permission form your provider to rent the property out as it is a change of use. This may cause the bank to seperate the morgages and report the interest seperately. Remember that you can remortgage the flat to raise equity and the interst on that would be deductible agains the rental income. This may not be in your favour but you should run some numbers. Regards Peter

[john_t]

I have talked to NatWest One and they talked about me putting both properties on the mortgage. Maybe I can take out another mortgage and have 2 instead of one.

If I do go with just the one account ans since it is a current account both my and my wife's salaries are paid into it, as will the rental income. The interest would be paid on the entire lump sum.

I know this unusual so I was wondering how I would separate the interest on the rental property and the interest on the new property we would be living in as it would all be in the same pot.

[TaxationPete]

The bank may be able to seperate the interest for you. Regards Peter

[TaxationPete]

You need to run some numbers as you are using capital that you have paid tax in to offset the mortgage with reduces the interest payments so the rental income is more exposed to tax at your marginal rate. Regards Peter

[john_t]

I will call them tomorrow and find out what the situation is.

My main aim is to have the rental property's loan to be as large as possible as I am in the top (currently) tax bracket.

Thanks for the help,

John.

[Telometer]

It is very simple conceptually, you are complicating the situation.

The rental flat is worth £250,000 when put into rental use. Presumably your mortgage will be more than £250,000. All you have to do is to work out the interest on 250,000. If the mortgage drops below £250,000 then the entirety of the interest relates to your BTL.