BTL - ofsetting the interest against main mortgage
Discussion
Hi,
What's the most efficient way of handlig a BTL mortgage when you also have a larger mortgage on your main residence? I have a relatively small mortgage on a place I rent out. Is there a way I can use money from my main house\mortgate to pay off that mortage & offset the interest of the whole then single mortgage against the income from the rental of the first property? does that make sense?
Alternatively, what's the recommended way of dealing with them? Keep them in isolation & manage each against it's income alone?
cheers,
a
What's the most efficient way of handlig a BTL mortgage when you also have a larger mortgage on your main residence? I have a relatively small mortgage on a place I rent out. Is there a way I can use money from my main house\mortgate to pay off that mortage & offset the interest of the whole then single mortgage against the income from the rental of the first property? does that make sense?
Alternatively, what's the recommended way of dealing with them? Keep them in isolation & manage each against it's income alone?
cheers,
a
If there is no borrowing outstanding on the rented property then there will be no interest being paid in resoect of that property. Therefore there would be no interest offset against the rental income.
The interest remaining on the loan would still be in respect of your main residence - on which no tax relief can be claimed.
An offset mortgage on the main residence might be the answer - at least you would not be paying tax on interest received.
The interest remaining on the loan would still be in respect of your main residence - on which no tax relief can be claimed.
An offset mortgage on the main residence might be the answer - at least you would not be paying tax on interest received.
Get an interest only mortgae on the BTL use the profit to pay your domestic mortgage faster. The benefit is you dont pay CGT on your domestic house when you pay off the mortgage, however you will be taxed on the asset if you pay off your BTL mortgage...so always work to paying domestic off first...Hope this makes sense!
Frank Bullitt said:
Get an interest only mortgae on the BTL use the profit to pay your domestic mortgage faster. The benefit is you dont pay CGT on your domestic house when you pay off the mortgage, however you will be taxed on the asset if you pay off your BTL mortgage...so always work to paying domestic off first...Hope this makes sense!
Yes it does, and it might also help the OP and others to know, that one can borrow against one's private home and claim tax relief on the mortgage loan interest, if the money is to be used to purchase or repair a BTL.Hi guys, sorry for the slow reply.. thanks for the responses so far.
Wings.. I think that's what I was thinking about..
Eric - I actually recently extended by BTL mortgage (currently on interest only) to fund the deposit on my new residence. On interest only, it just about brakes even profit wise after management fees as it stands right now.
So following Wing's comment, I could, in theory re mortgage again (or when the time is right) & move the whole debt over to the main residence & offset the whole interest against the profits from the BTL? I have read that somewhere before but have so far not been able to nail down the details & pros\cons. I guess there's bigger risk in terms of risking the main home, but it pretty much guarentee's that I'll never make a profit & thus pay tax on the income.
Or is the way eric suggests the right way forward?
thanks!
A
Wings.. I think that's what I was thinking about..
Eric - I actually recently extended by BTL mortgage (currently on interest only) to fund the deposit on my new residence. On interest only, it just about brakes even profit wise after management fees as it stands right now.
So following Wing's comment, I could, in theory re mortgage again (or when the time is right) & move the whole debt over to the main residence & offset the whole interest against the profits from the BTL? I have read that somewhere before but have so far not been able to nail down the details & pros\cons. I guess there's bigger risk in terms of risking the main home, but it pretty much guarentee's that I'll never make a profit & thus pay tax on the income.
Or is the way eric suggests the right way forward?
thanks!
A
You can only offset against your rental income, that portion of loan interest that directly relates to the funding of the purchase of the rented property. If you use the rented property as collateral for an additional mortgage, the extra interest you pay is NOT allowable against the rent from that property unless the purpose of the extra loan is to improve or enhance the rented property itself or fund another rented property.
The key to allowability of loan interest as a tax deduction is the PURPOSE of the loan, not how it is secured.
In your most recent post you seem to indicate that you have already used the rented property to secure additional borrowings for the purpose of funding the purchase of your main residence. Any interest related to that extra borrowing CANNOT be offset against the rent from your Buy to Let - even though that is that property the loan on which the loan is secured.
The key to allowability of loan interest as a tax deduction is the PURPOSE of the loan, not how it is secured.
In your most recent post you seem to indicate that you have already used the rented property to secure additional borrowings for the purpose of funding the purchase of your main residence. Any interest related to that extra borrowing CANNOT be offset against the rent from your Buy to Let - even though that is that property the loan on which the loan is secured.
Edited by Eric Mc on Friday 29th February 10:47
Wings said:
Frank Bullitt said:
Get an interest only mortgae on the BTL use the profit to pay your domestic mortgage faster. The benefit is you dont pay CGT on your domestic house when you pay off the mortgage, however you will be taxed on the asset if you pay off your BTL mortgage...so always work to paying domestic off first...Hope this makes sense!
Yes it does, and it might also help the OP and others to know, that one can borrow against one's private home and claim tax relief on the mortgage loan interest, if the money is to be used to purchase or repair a BTL.Yes - essentially.
It should be obvious from the paperwork surrounding the purchase of the new property that the funds required to purchase that property originated through the additional borrowing. In other words, keep all the documentation safely.
To ensure the correct interest amounts are offset against the Buy to Let property, you should request from your lender a Certificate of Interest charged for the year ended 5 April (i.e. each tax year) apportioned between the interest on your own resiudence and the interest relating to the Buy to Let borrowings.
It should be obvious from the paperwork surrounding the purchase of the new property that the funds required to purchase that property originated through the additional borrowing. In other words, keep all the documentation safely.
To ensure the correct interest amounts are offset against the Buy to Let property, you should request from your lender a Certificate of Interest charged for the year ended 5 April (i.e. each tax year) apportioned between the interest on your own resiudence and the interest relating to the Buy to Let borrowings.
Eric Mc said:
Yes - essentially.
It should be obvious from the paperwork surrounding the purchase of the new property that the funds required to purchase that property originated through the additional borrowing. In other words, keep all the documentation safely.
To ensure the correct interest amounts are offset against the Buy to Let property, you should request from your lender a Certificate of Interest charged for the year ended 5 April (i.e. each tax year) apportioned between the interest on your own resiudence and the interest relating to the Buy to Let borrowings.
So this is a case of getting it right from the start and making sure not to pay off extra on the BTL when you have a mortgage on your own home?It should be obvious from the paperwork surrounding the purchase of the new property that the funds required to purchase that property originated through the additional borrowing. In other words, keep all the documentation safely.
To ensure the correct interest amounts are offset against the Buy to Let property, you should request from your lender a Certificate of Interest charged for the year ended 5 April (i.e. each tax year) apportioned between the interest on your own resiudence and the interest relating to the Buy to Let borrowings.
Eric Mc said:
Yes - essentially.
It should be obvious from the paperwork surrounding the purchase of the new property that the funds required to purchase that property originated through the additional borrowing. In other words, keep all the documentation safely.
To ensure the correct interest amounts are offset against the Buy to Let property, you should request from your lender a Certificate of Interest charged for the year ended 5 April (i.e. each tax year) apportioned between the interest on your own resiudence and the interest relating to the Buy to Let borrowings.
Eric, would this apply to a holiday let? In the process of signing up a mortgage and the broker says this is no go. Well he would wouldn't he?It should be obvious from the paperwork surrounding the purchase of the new property that the funds required to purchase that property originated through the additional borrowing. In other words, keep all the documentation safely.
To ensure the correct interest amounts are offset against the Buy to Let property, you should request from your lender a Certificate of Interest charged for the year ended 5 April (i.e. each tax year) apportioned between the interest on your own resiudence and the interest relating to the Buy to Let borrowings.
Eric Mc said:
His problem is that he has almost completely cleared the loan on the BTL so he can't borrow to buy it again.
Yes, I was aware of that. My intentions were merely to point out that it is the intentions/reasons for taking out a/the loan, and not what the loan is taken out against ie. private residents. I have always used my main residents for raising loans to buy BTLs, simply that arranging a mortgage is both quicker and the interest rates charged are usually lower than a commercial loan or one against a BTL property."In your most recent post you seem to indicate that you have already used the rented property to secure additional borrowings for the purpose of funding the purchase of your main residence. Any interest related to that extra borrowing CANNOT be offset against the rent from your Buy to Let - even though that is that property the loan on which the loan is secured"
How will anyone know whether the extra borrowing which has been used to fund the purchase of the main residence was not part of the initial borrowing on the rented property. Surely you could just remortgage any BTL property and use the extra equity to pay off any other mortgage, and thereby reduce any potential profits on the BTL.
How will anyone know whether the extra borrowing which has been used to fund the purchase of the main residence was not part of the initial borrowing on the rented property. Surely you could just remortgage any BTL property and use the extra equity to pay off any other mortgage, and thereby reduce any potential profits on the BTL.
boxster9 said:
"In your most recent post you seem to indicate that you have already used the rented property to secure additional borrowings for the purpose of funding the purchase of your main residence. Any interest related to that extra borrowing CANNOT be offset against the rent from your Buy to Let - even though that is that property the loan on which the loan is secured"
How will anyone know whether the extra borrowing which has been used to fund the purchase of the main residence was not part of the initial borrowing on the rented property. Surely you could just remortgage any BTL property and use the extra equity to pay off any other mortgage, and thereby reduce any potential profits on the BTL.
At the time of re-arranging the new "Interest" only mortgage, the balance on the main residents/old mortgage would simply remain the same, and therefore always be the same percentage of interest being charged on the new "Interest" only mortgage.
How will anyone know whether the extra borrowing which has been used to fund the purchase of the main residence was not part of the initial borrowing on the rented property. Surely you could just remortgage any BTL property and use the extra equity to pay off any other mortgage, and thereby reduce any potential profits on the BTL.
At the time of re-arranging the new "Interest" only mortgage, the balance on the main residents/old mortgage would simply remain the same, and therefore always be the same percentage of interest being charged on the new "Interest" only mortgage.
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