Offset interest for renovation loan against taxable income?

[babybtl]

A year ago, I purchased a BTL property. It was renovated and was eventually let recently. The deposit for the BTL property (say£100k) and the renovation costs (say £50k) was raised by increasing the existing mortgage (of say £30k) on my main residence to £180k in total. I would be really grateful if someone can tell me if the proportion of the interest paid which relates to the additional amount raised ie the interest on the £150k will be wholly or partially allowable as an expense against the BTL income.
I have also purchased the BTL property and mortgaged it solely under my name. Will it be possible to have some/all of the profit taxed under my wife's name as she project managed the renovations and now manages the let property? What are my options if I do not want the mortgagee to become embroiled in this process?

[jta]

Look at it logically. You have realised the equity you had in your main residence and invested that into a business venture. You hope (and possibly pray) that you will make money from the venture. Why should the taxman give you more benefit on the money you have voluntarily borrowed? You could have invested the money into a Ferrari, would you have asked the same question if you had?

[TaxationPete]

Hold on here. You have raised the capital on your home and raised a mortgage on the B2L as well, for what reason. ?? I am always amazed that people buy a car for 25K and do loads of research, haggle about the price, the car mats. mud flaps, extended warranties, and free servicing and yet when in comes to property they dive in head first, no reseach, no back up and often no business plan. Regards Peter

[babybtl]

Hi Peter, I have borrowed up to the limit of the LTV allowed on the B2L mortgage and needed to pay for the remainder of the cost of the property in some other way. Regardless of that, due to the current rates of interest, I'm making a profit of £1500 per month after offsetting all interest payments on the B2L mortgage and all the expenses which I can think of legitimately offsetting against it eg letting agents fees etc. I'm also in the higher rate tax band and hence would really like to find a way to reduce my tax liability in relation to this investment property.

[babybtl]

Hi jta. Thanks so much for the info. I guess I was just grasping at straws in an attempt to reduce the tax liability that I'll suffer due to the profits I'm currently making from this venture.

[Lawcruncher]

the profits I'm currently making from this venture.


Rejoice! You're making a profit!

[babybtl]

Hi Lawcruncher. :) I am rejoicing but given the amount I'm already assisting our govt with, I was hoping not to have to do so on this latest venture.

[Poppy]

You should have paid for financial advice before buying this property solely in your name.

If you want your wife to share the profits then you will need to include her as an owner and the mortgage lender will undoubtedly have some input on that. I am not able to tell you what ownership proportions are appropriate for your circumstances.

You really ought to be glad. Try making some hay while the sun is shining on you. :)

[TaxationPete]

SO you have not mortgaged the B2L you have raised the value of the B2L and the reburb against your home (PRR) and there is no Mortgage on the B2L as such. In this case the interest ( only ) directly associated to the b2L is deductible. You should take some legal advice but a SEV to the HMLR and a robust 'Benefical Ownership' statement to apportion the income should resolve your problem and does not effect the legal ownership. An interpsousal transfer at no gain, no loss will give her the appropriate share of the property. But take well versed legal advice, this is not a DIY matter. Rememer to complete Form17 and send it to HMRC within 60 days of the BO. Regards Peter

[babybtl]

Hi Poppy. When I took out the mortgage, I wasn't expecting to make much/any profits according to my calculations. I did however expect the interest rates to fall and went for a tracker. What I didn't expect was that interest rates would fall to it's current level creating substantial profits! :D ... but, I should have got some financial advice (as you've suggested) to cover all eventualities.
Thanks for your input. It has been helpful.

[babybtl]

Hi TaxationPete. Nope. You got it right the first time! I have a mortgage on the B2L AND I have raised the deposit for the B2L and for the reburb by increasing the mortgage against my home (PRR). What I have managed to do (correctly) is to purchase a property in a prime location at a very reasonable price which has now been refurbed to a high standard and is giving me above market returns and hence, a decent profit! However, if I'm able to offset both sets of interest against my rental income, it will reduce the tax burden significantly. So in this situation which differs somewhat from that which you've highlighted, will I be able to offset the interest 'directly associated to the B2L' arising from the increase in the mortgage against my home (PRR)?
I will be taking legal advice asap re beneficial ownership etc.
Thanks so much for your advice Peter. I think you've saved me a penny or three! :D

[TaxationPete]

So the total mortgages you have raised covers the purchase and refurb price and no more, so all is well. Make sure this is well documents, did you have to declare the purpose for raising equity i.e. to purchase a B2L. Separating out the interest from your PRR will be a little more difficult and will require the either the help of the provider or monthly interest declaration and apportioning. Remember the arrangement fees and sometimes the legal fees associated to raising the finance are deductible against the rental income but amortised over the period of the loan.
Also read:
http://www.hmrc.gov.uk/cnr/nrl_guide_notes.pdf
Regards Peter

[babybtl]

Hi TaxationPete. I did declare the purpose for raising equity i.e. to purchase a B2L though I'm uncertain as to whether this is documented anywhere in the mortgage agreement. Will this be a problem?

Anyway, thank you very much for all the useful advice.

[TaxationPete]

No, they asked and you told them, they will have made a note on the file. Regards Peter