Claiming residential mortgage interest against rent

[uknick]

I have two properties. I live in one which has a mortgage against it and this will remain my main residence.

I've just inherited a second which has no mortgage on it.

I want to rent out the inherited property. I don't intend to do any refinancing, i.e. use the rented property to take a mortgage on and then use this to pay off my residential mortgage.

Can I claim the interest element of my residential payment against the rental income?

I thought I couldn't, however a friend says it doesn't matter which property the loan is secured against and pointed me to HMRC document BIM45700.

Is my friend correct?

[98elise]

uknick said:

I have two properties. I live in one which has a mortgage against it and this will remain my main residence.

I've just inherited a second which has no mortgage on it.

I want to rent out the inherited property. I don't intend to do any refinancing, i.e. use the rented property to take a mortgage on and then use this to pay off my residential mortgage.

Can I claim the interest element of my residential payment against the rental income?

I thought I couldn't, however a friend says it doesn't matter which property the loan is secured against and pointed me to HMRC document BIM45700.

Is my friend correct?

Only if the mortgage raised on house 1 was specifically to purchase house 2.

In that respect it doesn't matter what it was secured against, it matters what the loan was for though. In your case you cannot offset it as the loan was to purchase house 1.

You can refinance house 2 though.

Edited by 98elise on Saturday 9th May 12:15

[Eric Mc]

I used to always think that too but it was pointed out to me here that in certain circumstances, the interest CAN be reclaimed.

[keith333]

98elise is spot on. If you took out a mortgage on your main residence to buy a property to let, then you can claim the interest as a taxable expense. In your case the residential mortgage existed already, so I think all you can do is raise a mortgage on the property to be rented and pay off the mortgage on your main residence.

[uknick]

Eric Mc said:

I used to always think that too but it was pointed out to me here that in certain circumstances, the interest CAN be reclaimed.

Eric

Do you have a pointer to the circumstances, if they are other than already highlighted with regard to using finance raised against the rental property to clear the residential mortgage, within certain restraints.


Thanks

[98elise]

Eric Mc said:

I used to always think that too but it was pointed out to me here that in certain circumstances, the interest CAN be reclaimed.

Wow thats news to me! Seems like a very odd position for HMRC, but you would know better than me.

[uknick]

Thanks for all your answers. They do agree with what I thought, i.e. I can only claim relief against a loan related to the rental property.

But as my friend was adamant I thought I'd check.

One thing I did read on a taxation site was a little convoluted to avoid having to take this approach.

It suggested I could claim relief even if I didn't raise funding against the rental property to pay off the residential mortgage. The argument was that because I am allowed to claim relief by doing this I could still do so even if I didn't. I'm not sure I'd want to argue with HMRC that doing nothing could be claimed to be the same as doing something.

[sumo69]

Only allowable way of obtaining tax relief for any interest given the facts is to raise a mortgage on the inherited property and use the funds to reduce the residential mortgage.

Not a cat in hell's chance of just setting-off the residential mortgage interest - that would be fraud.

David

[996c2]

uknick said:

I have two properties. I live in one which has a mortgage against it and this will remain my main residence.

I've just inherited a second which has no mortgage on it.

I want to rent out the inherited property. I don't intend to do any refinancing, i.e. use the rented property to take a mortgage on and then use this to pay off my residential mortgage.

Can I claim the interest element of my residential payment against the rental income?

I thought I couldn't, however a friend says it doesn't matter which property the loan is secured against and pointed me to HMRC document BIM45700.

Is my friend correct?

Eric - can you expand on your answer please?! I would love for this to be the correct.

Otherwise we have to go through the ridiculous charade of
1. Obtaining an expensive BTL Mortgage on the inherited (now rented) property
2. Using this expensive fund to pay off the cheap residential mortgage on the residential property
3. Then finally obtaining a New cheap residential mortgage on the residential property to pay off the mortgage on inherited property to demonstrate that the purpose of the mortgage on the residential property is to fund the rental property and hence allow the interest to be deductible

[Eric Mc]

That's what you might need to do.