mortgage interest relief limit

[Jezzer]

In 1990 I bought my first home for £30,000.
In 2002 I bought another house which is now my primary residence.
Also in 2002 the first house became a buy to let house.
The first house's value in 2002 was £60,000.
It's value now is £100,000.
I have a mortgage on the property for £20,000.

My question is, how much can I increase my mortgage to and still claim tax relief on all of the mortgage against rental income.

Is it the original price I paid for the house (£30,000) or the value of the property when I started
to let it out (£60,000).

 

[ClubMan]

You can only offset interest on the amount of the mortgage outstanding in or after 2002 against rental income. Unless you borrow more money to renovate the property. Remortgaging makes no difference since it's what the money is used for and not the property that it's secured on that matters.

 

[Jezzer]

I thought the situation was that I could can offset interest on the outstanding amount of the mortgage at the time that I switched the first property from my primary residence to be let out. In this example £60,000.

 

[ClubMan]

I thought the situation was that I could can offset interest on the outstanding amount of the mortgage at the time that I switched the first property from my primary residence to be let out.

That's what I said!

In this example £60,000.

You said that the house value was £60K in 2002 not that there was £60K outstanding on the mortgage.

How much was outstanding on the mortgage when the property converted from PPR to rental? That's the key figure here.

 

[Jezzer]

The mortgage amount was 20K in 2002. That's the same as it now as it's an interest only mortgage.
Looks like I can borrow up to 40K more and offset it against rental income.

 

[ClubMan]

The mortgage amount was 20K in 2002. That's the same as it now as it's an interest only mortgage.
Looks like I can borrow up to 40K more and offset it against rental income.

How do you reckon that? As I have said you can only offset interest on the mortgage amount that was outstanding at the time the property coverted to a rental property. As such this would be interest on €20K or whatever is outstanding on the original mortgage now. Unless any mortgage top-up is used to renovate the property then interest on it cannot be offset against rental income.

You really should get indepenent, professional advice since you seem to be labouring under false illusions about what you are allowed in this context.

 

[Jezzer]

I am using the following article to come to my conclusions.

[broken link removed]

In the article it says that you can increase your mortgage up to the value of the property when the property became a let property.

It doesn't say anything about only being able to claim up to the value of the mortgage at the time the property became a let property.


Here's the example in full

Case Study B – Benefiting from letting out your own home and increasing house prices

John and Louise buy a house in 1987 for £50,000. They live in it for 14 years and then decide to move to a bigger house. Instead of selling the existing house they decide to let it out.

Over the 10 years the house has been fully paid for and therefore there is no outstanding mortgage.

The value of the house in 2001 is £190,000. The new house that they have seen is £300,000.

In order to provide the deposit for the new house, they re-mortgage their existing house on a buy-to-let mortgage for £152,000. This amount is used to fund the deposit on the new residence, which means that they only need to borrow £148,000.

The entire interest that is charged on the buy-to-let mortgage can be offset against the rental income. This is because it is below the market value of the property at the time of letting.

Two years later the original property is worth £250,000. In order to reduce the mortgage on their private residence, they are able to release an additional £38,000 of equity on the buy-to-let mortgage. This means that they have mortgaged to the amount of £190,000 on this property.

Again, because they have not gone over the market value of the property at the time of letting they are able to offset the entire interest charges against the rental income.

At the same time they have also successfully managed to reduce the interest on their private residence by an additional £38,000!

Once again, if the original property is remortgaged above £190,000 and the money is not used for the purpose of the lettings business then the interest charged cannot be offset against the rental income.

End of Example

Therefore using this example I would expect to be able to increase my mortgage to 60K (the value of the property when it was first let) and get mortgage interest relief on the whole amount

 

[NorfBank]

Jezzer that article relates to the specific wording of UK Tax Law, under Irish Revenue you can claim mortgage interest relief on the mortgage amount outstanding when the PPR was converted to a RIP unless you release equity to purchase, improve or repair an investment property.

 

[ClubMan]

unless you release equity to purchase, improve or repair an investment property.

And then you can only offset the interest against rental income on the property bought/rebnovated with the money. For example if you remortgage your PPR to buy an investment property then you can offset interest on that money against rental income from the investment property. If you remortgage investment property A to buy investment property B then the interest on the money can be offset against rental income from property B not property A. And so on.

As NorfBank says your link is specific to the UK and does not apply in Ireland. Maybe (especially having reconsidered the use of £ rather than € above) there's some confusion here and you did not realise that Askaboutmoney is primarily an Irish personal finance site?

 

[Jezzer]

Yes Thankyou Clubman and NorfBank. I didn't realise askaboutMoney was primarily Irish. I'll be more carefull in the future about where I post.

At least that has sorted out my confusion.

Thanks for your help anyway