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Benefits Of Mew

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What are the advantages of MEW?

If you borrow against one property, (with a small mortgage and lots of equity) to purchase another in 2002 as your PPR, (i.e rent out first home) apart from attracting a lower mortgage rate due to the deposit, what other benefits are their? After all, total mortgage payments will remain roughly the same, won't they?

Edited by Buffer Bear

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What are the advantages of MEW?

If you borrow against one property, (with a small mortgage and lots of equity) to purchase another in 2002 as your PPR, (i.e rent out first home) apart from attracting a lower mortgage rate due to the deposit, what other benefits are their? After all, total mortgage payments will remain roughly the same, won't they?

You get tax relief on the BTL mortgage but not on the PPR mortgage (since the benefits of ownership of your PPR are not taxable anyway, so there's nothing to offset the mortgage interest against, not because the tax system favours BTL, which it doesn't). So you want your BTL mortgage to be as big as possible.

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Thanks Zorn but what if the individual has not declared they are renting out the first property and simply applied for another mortgage or is this not possible as records would show they have two mortgages in their name?

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this is a very interesting area - one I looked into in detail a couple of years ago.

I'm sure you are aware that you can claim tax relief on the interest part of your mortgage payment if your first home is rented out.

However, according to the IR, this is not the case if you MEW to buy the 2nd house which becomes your PPR.

Apparently, if you MEW capital from your first property for deposit / capital on your second, the amount you have MEWed does not count for the purposes of calculating tax relief on rental income.

i.e. if you MEW 100k from PPR1, to pay for PPR2, you cannot offset rental income / interest payments on that 100k of PPR1 debt re: tax.

Of course, this all depends on whether the IR know this, but if they ever find out, expect a bill.

Hope this makes sense.

Edited by xian

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Thanks for that Xian. Just noticed we have the same signature.

Does anyone know if you buy a second property with a mortgage, this is automatically referred to the IR? I would assume many would not declare their additional income otherwise.

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Thanks for that Xian. Just noticed we have the same signature.

Does anyone know if you buy a second property with a mortgage, this is automatically referred to the IR? I would assume many would not declare their additional income otherwise.

Hey BB! So we do! A great quote too - one that I hold close to my financial heart!

Re: automatic referring to the IR for 2nd property, no I don't believe so.. since they are seperate depts with enough of their own bureaucracy to deal with.

However, with increasing cross-referencing with better IT systems and databases, and a shed-load of money spent on Govt IT, it all comes down to the risk of cross-referencing between depts.

I personally got the feeling when I was looking into it, that the chances of them realising you had 2 props, one let out having MEWed the equity to buy the second, and then claiming full mortgage interest repayment tax relief on the rental income... basically I get the feeling you'd be fairly unlikely to be rumbled..... it is I believe a small risk currently, but given my own knowledge in IT, I think it's a risk that will undoubtedly increase with time...

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this is a very interesting area - one I looked into in detail a couple of years ago.

I'm sure you are aware that you can claim tax relief on the interest part of your mortgage payment if your first home is rented out.

However, according to the IR, this is not the case if you MEW to buy the 2nd house which becomes your PPR.

Apparently, if you MEW capital from your first property for deposit / capital on your second, the amount you have MEWed does not count for the purposes of calculating tax relief on rental income.

i.e. if you MEW 100k from PPR1, to pay for PPR2, you cannot offset rental income / interest payments on that 100k of PPR1 debt re: tax.

Of course, this all depends on whether the IR know this, but if they ever find out, expect a bill.

Hope this makes sense.

This is incorrect. Time for a little more research me thinks......

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This is incorrect. Time for a little more research me thinks......

after a considerable amount of research, plus anonymous "suppose this" scenario calls to the IR, this is the sum of info that I currently have and trust.

Your post is somewhat less than informative.

perhaps if you have other info, you'd like to share. After all, you're sufficiently canny to steal others broadband... :lol:

edited for typos !!

Edited by xian

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Thanks Xian.

May be people just rent it out and don't claim tax relief, when they buy a 2nd property.

I think TTRTT, as an experienced LL (no, NOT London Landlady!) is warning against this as the IR are a lot more sophisticated than many people believe.

Also, in the "All About Renting Forum", tenants often mention informing the IR that their LL is not paying tax on rental income.

Over to you TTRTT

Edited by Buffer Bear

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after a considerable amount of research, plus anonymous "suppose this" scenario calls to the IR, this is the sum of info that I currently have and trust.

Your post is somewhat less than informative.

perhaps if you have other info, you'd like to share. After all, you're sufficiently canny to steal others broadband... :lol:

edited for typos !!

Don't you mean that you haven't done any research on this?

Here is a forum you can reseach this problem on:

http://www.taxationweb.co.uk/forum/?cat=11

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Don't you mean that you haven't done any research on this?

Here is a forum you can reseach this problem on:

http://www.taxationweb.co.uk/forum/?cat=11

TTRTR - would you like to point us to a particular thread that pertains to this specific issue that you know about? There are many threads on that forum as I'm sure you are aware...

edited to add: I have researched this, so your red flags really won't work on me. If you really think you have advice which contravenes advice taken directly from the IR and other independent sources, I, and I'm sure, BB, would like to know.

Pls can you direct us to the relevant info, otherwise I have to asssume you are bluffing to maintain your tenuous credibility.

Edited by xian

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The IR has judged that if you rent your own house out, the capital you place into your rental business, is the value of the property at the time youy first rent it. They have also decided that you can borrow with deductible interest up to that value at the time you first rented your property out.

So therefore a person MEWing can claim interest relief on amounts MEWed minus the existing mortgage up to the value of the property rented out.

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The IR has judged that if you rent your own house out, the capital you place into your rental business, is the value of the property at the time youy first rent it. They have also decided that you can borrow with deductible interest up to that value at the time you first rented your property out.

So therefore a person MEWing can claim interest relief on amounts MEWed minus the existing mortgage up to the value of the property rented out.

TTRTR - pls clarify:

1. I assume you are now talking about a ltd.co, as opposed to an individual?

2. the capital placed into the rental business... do you mean MEW, or rental income?

3. Surely the capital you refer to (if MEW figure) placed into PPR2 is not deemed to be the value of the property?

I have to say, I know it's late, but your post is not terribly clear. Do you know of info sources relating to this?

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TTRTR - pls clarify:

1. I assume you are now talking about a ltd.co, as opposed to an individual?

2. the capital placed into the rental business... do you mean MEW, or rental income?

3. Surely the capital you refer to (if MEW figure) placed into PPR2 is not deemed to be the value of the property?

I have to say, I know it's late, but your post is not terribly clear. Do you know of info sources relating to this?

1/ No, anyone.

2/ The VALUE OF THE PROPERTY when first rented.

3/ PPR2 has nothing to do with it.

Yes you are late in knowing about this, which suggests you have more research to do. I admit the Taxation Web forum is teeming with SDLT questions, but the answers are there.

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1/ No, anyone.

2/ The VALUE OF THE PROPERTY when first rented.

3/ PPR2 has nothing to do with it.

Yes you are late in knowing about this, which suggests you have more research to do. I admit the Taxation Web forum is teeming with SDLT questions, but the answers are there.

OK, so you are not referring to a ltd co (I forgive your misleading terminology when referring to a rental "business"); this would change the landscape.

Thanks for clarifying your poor linguistics re: the value of the property – it is completely obvious that this should relate to the complete amount of deposit plus loan placed on the property – something your post entirely failed to make clear, and was completely misleading.

Lastly, PPR2 has EVERYTHING to do with my OP…. the IR do not regard MEW on PP1 to pay for PPR2 as tax-deductible for mortgage interest purposes if PPR1 rented out AFAIK given my research.

Again, pls direct us to relevant info sources if you know better.

This time, pls refrain from posting just for egotistical purposes… I am actually seeking highly specific info here… something I have already researched, and am seeking additional info on, and another bland property investment forum simply won’t do the trick.

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Oh dear :o . What have I started? :unsure: It is proving very useful though.

Thanks Xian and TTRTT

:lol: not to wory, just a virtual boxing match! Just would really like to know if TTRTR really does know about this area, or if he's just fluffing ... this issue is sure to become more highly regulated as more people fancy BTL but leverage their PPR to do so as a starting block.

TTRTR... over to you..... give us some REAL info!!

Yours, lovingly, Xianne xxx

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The IR has judged that if you rent your own house out, the capital you place into your rental business, is the value of the property at the time youy first rent it. They have also decided that you can borrow with deductible interest up to that value at the time you first rented your property out.

So therefore a person MEWing can claim interest relief on amounts MEWed minus the existing mortgage up to the value of the property rented out.

This is partly correct.

The maximum amount of loan interest which can be deducted from rental income is limited to the value of the properties at the time it/they were introduced to the rental business. The purpose of the loan is not relevant. I have come across quite a few tax Inspectors who are not aware of this.

This is in addition to loans which are for the purpose of buying the rental properties or funding repairs or other business purposes. Nor is it necessary for the loans to be secured on the rental properties, or even secured at all.

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This is partly correct.

The maximum amount of loan interest which can be deducted from rental income is limited to the value of the properties at the time it/they were introduced to the rental business. The purpose of the loan is not relevant. I have come across quite a few tax Inspectors who are not aware of this.

This is in addition to loans which are for the purpose of buying the rental properties or funding repairs or other business purposes. Nor is it necessary for the loans to be secured on the rental properties, or even secured at all.

does this mean that if you MEW on ppr1 in order to buy ppr2, then rent out ppr1 (which obviously ceases to be PPR at all), the full mortgage interest payments (inc. MEW amount) on (formerly) ppr1 can be offset against rental income from ppr1 because it can be construed that the "rental business" did not start till after the MEW and rental?

My info thus far has told me otherwise.... that the IR would regard MEWing on PPR1 as non-tax deductible on PPR2.... any formal info to the contrary gladly appreciated.

Also, what constitutes a "rental business" in the individual's terms? How is its beginning defined ? At which point would the IR define a personal "rental business " as having started for tax purposes? I'm more familiar with Ltd Co scenarios....

thanks in advance.

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OK, so you are not referring to a ltd co (I forgive your misleading terminology when referring to a rental "business"); this would change the landscape.

Thanks for clarifying your poor linguistics re: the value of the property – it is completely obvious that this should relate to the complete amount of deposit plus loan placed on the property – something your post entirely failed to make clear, and was completely misleading.

Lastly, PPR2 has EVERYTHING to do with my OP…. the IR do not regard MEW on PP1 to pay for PPR2 as tax-deductible for mortgage interest purposes if PPR1 rented out AFAIK given my research.

Again, pls direct us to relevant info sources if you know better.

This time, pls refrain from posting just for egotistical purposes… I am actually seeking highly specific info here… something I have already researched, and am seeking additional info on, and another bland property investment forum simply won’t do the trick.

Eventually you're going to realise you're wrong and get down off your high horse & stop trying to insult me.......

Here is a link to an article on the forum I've told you about that took me about 1 minute to find this morning:

http://www.taxationweb.co.uk/articles/article.php?id=125

Investment Properties, Reducing Your Mortgage And Interest Relief — TaxationWeb (December 2004) by Arthur Weller and Amer Siddiq

Introduction

Ever since Maurice Parry-Wingfield (Tax Director at Deloitte), mentioned paragraph 45700 from the Inland Revenue Business Income Manual, accountants and tax specialists have been highlighting the potentially huge benefits this can bring about for landlords.

In the 18 September 2004 edition of the Financial Times, Maurice Parry-Wingfield drew attention to the fact that paragraph 45700 gave landlords the opportunity to release equity from their investment properties and offset the interest regardless of what the equity release was used for.

The only restriction is that the equity release cannot be greater than the market value of the property when it is brought into the letting business. If the property had been originally bought for letting, this amount would be the purchase cost of the property.

In paragraph 45700, the Inland Revenue provides the following example:

‘Mr A owns a flat in central London, which he bought ten years ago for £125,000. He has a mortgage of £80,000 on the property. He has been offered a job in Holland and is moving there to live and work. He intends to come back to the UK at some time. He decides to keep his flat and rent it out while he is away. His London flat now has a market value of £375,000……He renegotiates his mortgage on the flat to convert it to a buy to let mortgage and borrows a further £125,000. He withdraws the £125,000 which he then uses to buy a flat in Rotterdam.

The Inland Revenue goes on to say that ‘Although he has withdrawn capital from the business the interest on the mortgage loan is allowable in full because it is funding the transfer of the property to the business at its open market value at the time the business started. The capital account is not overdrawn’.

Edited by Time to raise the rents.

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ttrtrs, may I ask a quick question? Is the following assumption correct?

Mr A owns his ppr outright valued at £200k. He then mortgages it for £150k( normal residential mortg) interest only and uses that £150k to buy a shop that he rents out. Can he write all of that £150k he raised off against the rental income from the shop? Does the mortgage lender stipulate that the money can't be used for a commercial purchase?

Many thanks

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ttrtrs, may I ask a quick question? Is the following assumption correct?

Mr A owns his ppr outright valued at £200k. He then mortgages it for £150k( normal residential mortg) interest only and uses that £150k to buy a shop that he rents out. Can he write all of that £150k he raised off against the rental income from the shop? Does the mortgage lender stipulate that the money can't be used for a commercial purchase?

Many thanks

Yes in that case the interest is deductible as an expense against the rent from the shop. The most important thing is the purpose of the loan, which is commercial and therfore deductible.

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Yes in that case the interest is deductible as an expense against the rent from the shop. The most important thing is the purpose of the loan, which is commercial and therfore deductible.

Forgive me if I'm repeating myself, but the loan raised on the ppr though used commercially will be a residential type mortgage. Does that pose a problem?

Thanks

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