Interest relief on rental income - specific scenario

I've been trying to get confirmation on the tax-relief situation in the following scenario, and have so far failed (having also scoured the revenue website and emailed them):

I'm considering moving from my current residence to a brand new one, and renting out the current one.
This would involve releasing equity on the current residence, in the form of an interest only loan, to help buy the new one.

Now as I understand it, you get full tax relief on the rental income from an investment property, based on interest paid ***paying for, or maintaining that investment property***.

However, in my case the equity release is not directly paying for the investment property, it's helping me buy a new residence for myself. I have been advised by a mortgage broker nonetheless that I WOULD get the tax relief on the interest paid on the loan.

Any clarifications would be appreciated.

scallywag said:

However, in my case the equity release is not directly paying for the investment property, it's helping me buy a new residence for myself. I have been advised by a mortgage broker nonetheless that I WOULD get the tax relief on the interest paid on the loan.

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I suspect that this is incorrect advice and you can only offset interest on the original loan for the now investment property against rental income generated by that property. On the other hand the additional equity release used to purchase the new owner occupied property would qualify for owner occupier mortgage interest relief and maybe that's what your broker (what sort of broker?) was referring to?

Don't pay any heed to tax "advice" from your mortgage broker or any other source unless they are professionally competent to give such advice.

The mortgage broker concerned is from a large reputable firm, and he's definitely saying that I get relief on the rental income, based on the interest-only mortgage. Basically he's saying that the loan is considered as a business expense of my investment property.

On my new home residence, I'll just get the standard non-first-time buyer mortgage interest relief.

I've emailed revenue.ie today with this question, I suppose it would take a while to get a reply. I was thinking of ringing them - do they normally give out advice such as this?

scallywag said:

The mortgage broker concerned is from a large reputable firm, and he's definitely saying that I get relief on the rental income,

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What do you/he mean by "relief" in this context? Writing the interest off against rental income or owner occupier mortgage interest relief? As I say I am pretty sure that you can only write off interest on the original amount of the loan that is outstanding and not on any top-up used to purchase a new PPR (which will, however, qualify for owner occuppier mortgage interest relief).

based on the interest-only mortgage. Basically he's saying that the loan is considered as a business expense of my investment property.

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How does he reckon that releasing equity in the investment property to buy a new PPR is a business expense?!

On my new home residence, I'll just get the standard non-first-time buyer mortgage interest relief.

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Well you can't claim both so if he's saying that you can write the interest on the topped up loan against rental income (which I think is NOT the case) then you can't also claim owner occupier mortgage interest relief on the same interest.

I've emailed revenue.ie today with this question, I suppose it would take a while to get a reply. I was thinking of ringing them - do they normally give out advice such as this?

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They just give out information and they can get it wrong. If in doubt get independent, professional advice on the tax issues from somebody authorised and qualified to dispense such advice and who does not have any vested interest in selling something to you.

The mortgage broker concerned is from a large reputable firm

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That doesn't matter. Unless he is also an accountant or accredited tax advisor he has no professional duty of care to you in relation to tax advice and no legal exposure if things go wrong for you later as a result of following his advice.

The same principle has meant that bank managers who gave their customers wrong "tax advice" in the past were found by the courts to have no liability to their clients for the consequences of their "tax advice"

Would the top up loan on the existing property be in order to allow you to keep the property to rent out and therefore an expense of having the rental property? Otherwise you would be selling the existing property in order to buy a new PPR. or would that be too logical

There is a UK tax case on this issue. What was held there was that the key matter was the loan was secured on the rental property.

So before you all shoot the Broker, think through the logic of what this means.

If I have an existing PPR and want to move and buy another and keep the existing, then if there is equity on this property, what is wrong with leveraging this up first to help buy the other. In effect if I bought the house as investment property with 100% borrowing, I would clearly get the 100% and none of you would argue with this. Even if I had €100k on deposit.

On the other hand, given that I have the investment property first, and need the dosh to buy the other, then the additional loan is not in respect of the investment property but the PPR, then some of you are saying that this could not be for the investment property. Seems to me its like labelling the euros in your pocket.

This UK case may of course not be followed here. But what it would say to me is the importantance of structuring the transaction in the right sequence.

And a simple example of the 'devil in the detail' is that a principlal private residence does not have to be 'owned' in order to claim interest relief i.e. borrowing is respect of the rental property also qualifies ..revenue dont spell that out.

I think the term "top-up" might be misleading here. The situation is that there are 3 mortgages:
1) my existing mortgage on my existing property, which is quite small and I will probably pay off completely
2) an interest-only mortgage, leveraged on my existing property (current home)
3) a repayment mortgage, which will cover the remaining cost of my new home.

I think Angie and Wizard have a point: if I sold my existing property, I could buy the new property with just mortgage 3). Then I could buy my old property back again, with mortgage 2), and qualify for mortgage interest tax relief (mortgage 2) on the rental income because the mortgage was clearly for an investment property.

Instead, the plan is obviously not to sell and buy the old property again, but to just keep it with the help of mortgage 2).

I agree that brokers advice isn't reliable, but it's the only advice I've been able to get so far. I guess a tax adviser is in order here.

I think I've found my answer, courtesy of another thread. And the answer seems to be NO, I'm not entitled to rental relief, despite what my broker told me.

If you go to
[broken link removed]
and click on
Question of Money - Mortgage Relief
there's an article describing pretty much my scenario.

Thanks for all the comments.

Actually if structured right you would be, do what you are doing and you definitely won't get it.

Take the situation where you raise equity release whilst this is your current home.

And you then have (say) an 80% loan on this;

Then borrow for your new PPR.

What is the status then of the borrwoing on the the property that is now an Investment property ..

In fact, give the Revenue the headache and persist in working out the logic.

Alternatively, raise borrowings on it and acquire another one ..

WizardDr said:

Actually if structured right you would be, do what you are doing and you definitely won't get it.

Take the situation where you raise equity release whilst this is your current home.

And you then have (say) an 80% loan on this;

Then borrow for your new PPR.

What is the status then of the borrwoing on the the property that is now an Investment property ..

In fact, give the Revenue the headache and persist in working out the logic.

Alternatively, raise borrowings on it and acquire another one ..

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The money raised by the equity release will not have been used to buy the property and will not be allowable. If the equity release were used to enhance the property say building and extension then it might be.