PPR to Investment Property

I am planning to move home next year (into my fiancee’s house) and plan to let my own house as an investment property and have a few questions. I will have lived in the house for over 5 years so no stamp duty clawback.

1. Will the mortgage interest be allowable against tax? I purchased the house in 2000. I read there were some changes in rules re mortgages but that all mortgage interest is no allowable again; is this correct? When do I notify my mortgage provider that I wish to change from a home loan to an investment property loan? I presume the norm is to haggle re interest rates etc

2. Some improvements need to be carried out to the house particularly window replacement. As I understand it if I replace them next year (when house is investment property) then I can write off the cost over 8 years against rental income. If I replace them this year do I get any benefits?

3. In general when a house switches from PPR to investment are expenses incurred when improving PPR allowed and indexed when selling the investment property?



Thanks in advance for any comments.

1. There are two types of interest relief. One is TRS (Tax relief at source) on your PPR whou currently receive. You will lose this when it becomes investment. The 2nd is tax relief on rental income can be offset against the interest paid on a loan used to purchase or re-furbish an investment property which you will get on your original loan or any loan you take out to carry out re-furbishments on the property. If you re-finance the property for any other reason you cannot offset the interest.

2. Any expenses incurred while it is an investment property can be used to offset tax on the rent. I suspect if you carry out improvements while it is still your PPR they will not be allowable expenses.

3. It ceases to be your PPr when you change your PPR. i.e. when you move in with your fiance. The property does not have to be actually rented in order to offset your expenses. Once it is no longer your PPR and you spend money getting into a condition to be rented you may offset the expenses as well as the letting costs advertising etc.

Dev.

mortgage

you might be in trouble as the house was bought during the period that interest was not allowed as a tax deduction. i could be wrong but i dont think you can offset any of your interest.

Re: mortgage

DOn't forget the Capital Gains Tax impact when you come to sell the property and the need to upgrade your insurance. What kind of yield do you expect to make on your investment? Have you considered selling up? (Take the money & run)

Good advice from rainyday but remember that Capital gains is indexable against inflation (I don't know the details) and the extra insurance shouldn't be more than a couple of hundred Euro, and that's tax deductable against the rental income as well. The real question is could you put the money that selling the house would generate to better use?

Eamon is not correct. It doesn't matter when you bought the house. If you borrow money to purchase or refurbish an investment property you may offset the interest against the rent for income tax purposes. There used to be a date whereby if you bought your investment property after it you no longer received the tax relief as a result of the Bacon report, but this was rescinded.

Also, hasn't indexation been removed as an allowance? I could be wrong on that one though.

Dev.

[broken link removed]:

Adjustments for inflation (indexation relief)

For disposals made on or after 1 January 2003 indexation relief will only apply for the period of ownership of the asset up to 31 December 2002.

Click to expand...

Thanks for all the responses but this raises another issues for me...
if I sell this propery as investment is cost what I paid originally or is it some deemed figure when it becomes invest prop (ie not my PPR)

If a property was at different times your PPR and an investment property then you calculate the gain with reference to the sale price minus the original acquisition price (plus allowable costs and indexed as appropriate etc.) to give the gross gain and a proportion of this gain is assessable for CGT. For example if you owned the property for 10 years, lived in it as your PPR for 6 years and rented it out for 4 years then ((4-1)/10) = 30% of any gain is assessable for CGT by virtue of the property having been rented out (you might expect it to be 4/10 = 40% but I think that you're allowed one year after the transition from PPR to rental property free of CGT but I am not 100% sure about this).