General (main property discussion here) - Re-financing - tax position

If you re-mortgage a property you rent out to release some capital to spend on yourself then how do you show this on your tax return, because the only part of the mortgage that is tax deductible is the original loan which would be with the original mortgage company which is no longer around because you have re-mortgaged to a new company. Hope this makes sense, thanks.

Hi Sharaon,

You can off-set all of the INTEREST part of any loan that is for the purpose of purchasing your property. This INCLUDES the 15% initial deposit (or whatever percentage deposit you put down).

So if you have (had a mortgage) for 85% of the value of the property initially, that is off-settable (if that's a word) against tax. AND (not a lot of people know this) you can also off-set the 15% deposit too (if you got a loan to finance it). It doesn't necessarily have to be one loan! You just have to be able to semonstrate that you took out the loan(s) to finance the purchase of the property.

So with all that in mind, if you re-mortgage up to 100% of the property's original value, then you should be ok to off-set all of the INTEREST payment part (I am assuming you may have a repayment mortgage - if not then all of your repayments are off-settable).

Above 100% of the value of the property, then that should be ok too, as this is still an outgoing that you should be able to off-set against your rental income (I'm not 100% sure about this to be honest - only about 99%, as the law may have change since I last looked).

Anyway it's important that you state on your tax return that you are going to use the money to pay off an existing loan or preferably that you "intend to re-invest in another property in the future." Never, Never, ever say you are going to "spend it on yourself" as I think this might then incur tax !!!

Tax is a funny one - in the eye of the law it's all about what you intend to use the money for at the time, so make sure you intend to re-invest it!

Obviously don't lie though ;-)

Regards,

FM.

P.S.

There are a few good books about exactly this in WH Smiths, so if you are feeling really sad and bored, get down there and buy one !

FM.

I agree with all of the posted comments so far. I would add that I have had to use credit cards (cash out...) to help with some deals and the interest (sometimes going to over 29%!!!) was rightoffable...

As long as you can show a debt-track record AND interest payments you are safe. This means private loans too..... Think about that last sentence!

Regards

Malik