Reduce mortgage on holiday home with equity release from rented property

T

Toto

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In order to reduce tax bill on rented property, I intend to release some equity (and thereby increase annual interest payment) and use lump sum to reduce mortgage on another property (holiday home earning no income).

(1) Would revenue have an issue with this?
(2) Would lending institution insist that the equity release be re-invested back into that property? Or do they care what you do with it, if equity v financing is still quite strong?
 

This will not work as the issue of whether interest is allowable against rental income is decided by whether the money is used on that property or not. The fact that this money is secured on the rental property bears no relevance as the money was used to reduce the balance on the holiday home.
 
Not claiming TRS, deducting mortgage interest as an expense from rental income as part of end of year tax returns.

Clarkey - Surely, on a variable interest rate, an equity release would show up on a Certificate of Interest as part of the interest paid figure for the year. Are you saying that people apportion out the additional interest paid (from an equity release on rental property) and omit it from their tax calculation on that property when, for example, they are raising funds for a deposit on a property abroad.

I understand what you are saying, but what would alert Revenue to the fact that not all the interest paid figure is allowable as an expense against rental income?

Not advocating tax evasion, but surely Revenue rely alot on Joe Soap's integrity here.
 
Sorry, I misunderstood!

I guess they do, but it's equally the case that they could seek access at any time to all relevant information from both (or any other) institutions. I think I'd be inclined to make a full and frank disclosure. Anything else, apart from being just plain wrong, could come back and bite you on the assets some day...
 
AFAIA most lending institutions will issue an interest cert split between the amount on a rental property and a holiday home /PPR if asked.
 
Guys,

I have related question.

I currently have a mortgage of approx 120k on PPR worth 400k. I am planning on building a house on a site later this year which will become my PPR.

I am not sure yet if I will sell my current PPR or kept it to rent. If I sell I have no problem. My question arises if I keep it to rent.

If so my plan would be to release as much equity as I can now on my current PPR e.g. 80k. This would bring the mortgage on my PPR to 200k. I would use the 80k toward the costs of building my new house. Say this happens over the next 3-4 months. Then on 1st Jan 2008 I move from my current PPR to the new house (which then becomes my PPR on this date) and start renting new house on 2nd Jan 2008.

Am I correct in saying that I could claim mortgage interest relief on 200k which is the mortgage I have on my old PPR at the time I start renting it?
 
Strictly speaking No. Revenue may query what you did with the 80K - you used it to build your PPR. You can only claim interest relief provided the principle was used in the purchase of the rental property (your current PPR)
Once you let out the proprty you can claim TRS on 80K but you can't on 120K.
You will have to ask your mortgage provider for an interest cert for a split mortgage.

I am assuming that when you purchased the property over 5 years ago.
 
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