Tax relief when withdrawing from overpayment resereve

[jonnyw1]

Can anyone comment as to whether I should be able to claim tax relief on the following:

(Figures are made up, but should give an example of situation).

Property bought a few years ago for £100K
Mortgage for £80K
Overpayments made of £10K
Giving outstanding mortgage of £70K

Overpayments have been paid into an overpayment reserve (accessible at any time)

The property was bough as as private residence to live in. Lets say for arguments sake that it is now worth £91K, and was let out for first time yesterday.

Currently, I believe tax relief can be made on the interest payable on the £70K outstanding.

What I want to know is, can I withdraw the additional £10K (to use as a deposit for a house to live in), and claim tax relief on the interest of the additional £10k also (i.e. the entire new outstanding balance of £80K)?

Can anyone point me in the directions of where this is documented?

[Gordon999]

You can charge "loan interest" as allowable expense against "rental income" up to the market value of your property at the date of commencing your letting business.

The annual return for property income is made on Form SA105 and the guide notes are below ( see note before entry in box 24 ) :

http://www.hmrc.gov.uk/worksheets/sa105-notes.pdf

[Telometer]

You can therefore obtain tax relief on any level of mortgage up to the market value of the property which you state to be 91k. In my view you are permitted to add notional acquisition costs to that 91k (SDLT, legal fees etc.).

(And yes I know 91k is below the SDLT threshold, but the numbers are stated to be illustrative only.)

[jonnyw1]

Many thanks for the above replies.

I think as soon as the property is let (and I get some free time as a result), I'm going to have to get and read the guide to property tax book that was recommended to me in another of the threads - along with reading the notes linked to above (thanks again for that).

On a side note (assuming I sell after 3 years, and the house is worth more than the original purchase price) would the CGT be based on the increase in the original purchase price, or the increase over the market value when letting commenced?

Obviously if it's the latter, I'm going to be at a disadvantage due to the house currently (possibly) being worth less than when we bought it :-(

EDIT: also, how is the market value decided/estimated (or is that up to me to determine ;))?

(Nationwide house price index says it's about the same, but sold prices on the street - for similar houses, but not as nice as mine may say different)

[Telometer]

If you sell within three years of moving out, there is no CGT - and indeed no allowable capital loss (a loss that may, in future or the same tax year, be set off against other capital gains).

If you sell after that time, then you pro-rate any profits/losses over the length of time you have owned the home. Those relating to the period when you lived there plus the last three years are tax free; of the remainder the first 40k of gains are tax free. If the remainder is a loss, that is an allowable capital loss.


What is market value? Be sensible; it's what you would get if you were to sell the house. (Actually, it's what you'd pay if you were to buy the house.)