# Mortgage interest as an expense against Rental Income



## curious G (24 Jun 2009)

Hi 

My wife owns a house and when we got married ,she moved in with me, she is considering renting, I know most of the tax implications but one I have been unable to get an answer to is.

Can she offset the Mortgage interest against rental income, obviously when she originally took out the mortgage interest it was to buy the house to live in but now its for rental, as it wasn't borrowed with the purpose of renting then is it allowed. 

Any advice much appreciated

Regards

Curious G


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## callybags (24 Jun 2009)

She can, but the relief will be restricted to 75% of the interest.


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## curious G (24 Jun 2009)

Thanks Callybags, I'm just worried about the fact the mortgage has to be taken out with the purpose of renting which obviously originally it wasn't.


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## callybags (24 Jun 2009)

That isn't an issue.

To take an extreme example, you could move out of your home and rent it every second year. The interest applicable to the years you rent it will be allowed as a deduction against the rental income.

Also, if you rent out part of your house and the income is above the "rent-a-room" limit, then you can apportion the mortgage interest and claim the relevant amount.


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## curious G (24 Jun 2009)

Thanks again, So could i borrow more money on the property to increase the mortgage interest and pay off our other house mortgage


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## paulpd (24 Jun 2009)

You might need to be wary of the bank too. Buy-to-Let mortgages are more expensive. You probably have a more favourable rate seeing as it's (as far as they're concerned) a home mortgage. 

I recently made an enquiry to BOSI and they were very quick to point out that they must be informed if the property is to have any other use other other than being my main home.


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## paulpd (24 Jun 2009)

curious G said:


> Thanks again, So could i borrow more money on the property to increase the mortgage interest and pay off our other house mortgage


 
The interest has to be specifically related to the original cost of the property. A lot of people were caught out by re-mortgaging investment properties in the good days to buy the holiday home, car, etc. That portion of the interest is not allowed as a deduction. The rest is now restricted to 75% from 2009 onwards.


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## callybags (24 Jun 2009)

curious G said:


> Thanks again, So could i borrow more money on the property to increase the mortgage interest and pay off our other house mortgage


 
Unfortunately not. It is only the proportion of the mortgage applicable to the rental property which is available for tax relief.

As an aside, the mortgage does not need to be on the rental property.
If one re-mortgaged their PPR to buy an investment property, the proportion of that mortgage interest would be allowable against the rent.


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## Steve D (24 Jun 2009)

You should review the mortgage documents on this property because there is likely to be a condition in the mortgage to say that you have to inform the mortgage company that the property has changed from a PPR to a rented property. You will find that if this condition is present you are likely to be required to convert the mortgage to a buy to let mortgage (at a higher rate). If you decide to ignore this and if the bank find out at some time in the future that you have been renting the property they could insist that you pay the backdated difference between the rate that you are currently paying and buy-to-let rate. It may sound far fetched but I have know it to happen and it is more likey to happen in an economic crisis where banks are desperate to get hold of any money.


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## Howitzer (25 Jun 2009)

You need to be registered with the PRTB in order to offset your mortage interest aginst rental income.


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## wheeler (25 Jun 2009)

Steve D said:


> .. if the bank find out at some time in the future that you have been renting the property they could insist that you pay the backdated difference between the rate that you are currently paying and buy-to-let rate. It may sound far fetched but I have known it to happen ...


 
Seriously - you actually know of cases where this has happened?


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## Steve D (25 Jun 2009)

wheeler said:


> Seriously - you actually know of cases where this has happened?


 
Yes, I know somebody who had to pay several thousand pounds to a bank when they found out.


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## Complainer (25 Jun 2009)

You'll also need to notify the insurers that the house is rented. There could be a stamp duty clawback too, depending on when she bought the property.


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