Wednesday, Jan 30, 2008
When is this tax scam ending?
Gordian: Can we claim tax relief on buy-to-let?
"Q My husband and I have recently taken out two mortgages to buy a second home for buy-to-let. As the property cost £270,000, we have a buy-to-let mortgage of £200,000 and a normal mortgage of £70,000 against our own home. Can we claim the tax relief on mortgage interest for both mortgages against the rental income? A yes, you should be able to claim tax relief on the interest on both mortgages. If the mortgage interest is more than the rental income, the calculation will create a business loss, which you can use to reduce the taxable profits of your buy-to-let property in future tax years"
Posted by confused76 @ 03:25 PM (1182 views) Add Comment
8 Comments
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1. Fff said...
They are effectively asking the taxpayer to subsidise their investment until they make a profit!!
2. wdbeast said...
Very funny C76.
I am having a cr4p afterneen and needed a good laugh!
3. Orwell said...
And can I get tax relief on my guillotine?
4. monty032 said...
They presumably took out a £200K mortgage on the property because the mortgage company would only let them have that much to preserve its rental cover. So with a £70K mortgage on top, they are losing money from day one on the interest payments alone, even disregarding eventual refurbishment costs and void periods. This might have made sense when prices were rising, but in a static or falling market, a highly leveraged investment that is paying less than your cost of capital is crazy.
5. maddison said...
Just so you know you can only use this loss against income not capital gain. When I sold my BTL last year the loss of £7000 in the last financial year due to voids, rent arrears, paying off freeholder service charges etc etc was not deductible against the capital gain...
6. bidin'matime said...
Not sure why people think it's a subsidy. BTLers don't get anything back from the tax man, it just means that they don’t pay tax when they don’t make a profit. If the rent is more than the interest on the loan(s) used to buy the rented property (plus other costs, insurance etc.) then they pay tax on the profit. If it's not, then they don't. Simple as that. As maddison says, if the answer is a loss, they can't then offset this against the captial gain on sale.
7. Donnyrover said...
It sounds like they have used some equity in there primary residence to facilitate the purchase of the BTL, the BTL was 270k and they have a BTL mortgage of 200k and another mortgage of 70k secured against their home, why shouldnt they get tax relief? same as if you mortgaged your house for 70k to buy a sandwich shop or garage. Or am i missing the point?.
8. eyeoftheweasel said...
Hi BMT, I'm not sure that I entirely agree with what you're saying. There might be a case for saying that tax relief on the interest on the BTL property isn't a subsidy; I'm guessing that this can be considered part of a business, and so income can be offset against costs. However, I don't see how tax relief on this couple's interest payments for their home can be considered anything other than a subsidy. If someone is renting their home, can they claim tax relief on their rent?