Orange123 Posted November 23, 2014 Report Share Posted November 23, 2014 Hi there I own a property which also has a separate flat - the property is all on one deed. I have a mortgage on the entire property (house and flat). When it comes to renting out the flat could i argue the case that the entire mortgage is against the flat therefore reducing my tax liability or would it be apportioned some other way thankyou in advance Link to comment Share on other sites More sharing options...
Richlist Posted November 23, 2014 Report Share Posted November 23, 2014 What do you actually mean by 'a property which also has a separate flat' ? * Do they have separate council tax liabilities ? * Do they have separate front doors ? * Are they both fully self contained ? * Do they each have their own gas & electricity meters ? More info required. Link to comment Share on other sites More sharing options...
Orange123 Posted November 23, 2014 Author Report Share Posted November 23, 2014 What do you actually mean by 'a property which also has a separate flat' ? * Do they have separate council tax liabilities ? * Do they have separate front doors ? * Are they both fully self contained ? * Do they each have their own gas & electricity meters ? More info required. Yes to all of those questions but the mortgage is against the entire property The property was purchased which has a house a separate flat - the mortgage is against all of it. I live in the house with my family the flat has its own door, own utilities, own council tax. Insurance is paid by me for the entire place (both properties) mortgage company are aware flat is rented out Link to comment Share on other sites More sharing options...
Richlist Posted November 23, 2014 Report Share Posted November 23, 2014 I don't know the answer ......and very often where tax matters are concerned, there often isn't just one correct answer. BUT, looking at it logically, I could see the following suggestion being fully accepted by HMRC as a realistic/ fair split of the mortgage payments . * Obtain professional valuations of the individual properties. * Translate those values into percentage splits for the self contained flat & house e.g. flat £100K, house £300K = 25% : 75% split. * Apply split value to loan interest payments so that you claim e.g. 25% of the total mortgage interest for the flat. Alternatively go see an accountant who will no doubt come up with his own equally unique proposal. Link to comment Share on other sites More sharing options...
Orange123 Posted November 23, 2014 Author Report Share Posted November 23, 2014 ok, thanks for the reply. I agree i think worse case is split by value yet you could strongly argue that the flat should be loaded with the mortgage the same that you would do if you had a separate main home and separate rentable flat - with the latter with the bulk of the mortgage Link to comment Share on other sites More sharing options...
Richlist Posted November 24, 2014 Report Share Posted November 24, 2014 you could strongly argue that the flat should be loaded with the mortgage the same that you would do if you had a separate main home and separate rentable flat - with the latter with the bulk of the mortgage I actually disagree with that statement. HMRC's position is that its always the purpose of the loan not the security used to raise the loan that determines its tax offset. The original purpose of your loan was to buy a property that comprised of a house and flat. As you have said yourself : I have a mortgage on the entire property (house and flat). Link to comment Share on other sites More sharing options...
Melboy Posted November 24, 2014 Report Share Posted November 24, 2014 Personally I cannot see that HMRC would accept your situation of loading the flat with your tax liability. They would be looking for the percentage split of tax liability from you. The only way to know the correct answer to your question is to consult HMRC direct or a professional property tax consultant. Link to comment Share on other sites More sharing options...
Richlist Posted November 24, 2014 Report Share Posted November 24, 2014 The only way to know the correct answer to your question is to consult HMRC direct or a professional property tax consultant. I disagree with that as well....I'm having a negative day today ! In the absence of clear policy from HMRC.....and there are many examples of situations that are not specifically covered by any HMRC publication.....there is no correct answer. There are usually a number of options which can be put forward, backed up by common sense, logic and fair play in order to justify the method being adopted. Talking to HMRC on such a query will not necessarily result in a 'correct answer', it will result in ONE opinion that may not be the best for your circumstances. Remember, the rest of us WANT you to pay your taxes......because the UK is struggling to balance the books and if you don't pay your share, the rest of us will probably have to make up any shortfall. Good luck......let us know how you get on. Link to comment Share on other sites More sharing options...
Carryon Regardless Posted November 24, 2014 Report Share Posted November 24, 2014 It's the purpose of the loan that is important. When we buy a BTL with a mortgage it's pretty clear that we took the mortgage to enable the BTL purchase so claiming the interest on the mortgage is an obvious result. I have a similar situation to you in that when I remortgaged our own home I used 'some' of the funds raised to buy further BTL investments, so proportioning the interest on our own home's mortgage for tax purposes becomes correct. In your case I would suggest that the value of the flat at purchase is the part of the mortgage required to purchase it. That will equate to a proportion of the mortgage to be used for tax purposes while the mortgage exists. To complicate a little more you might also have set aside funds raised for purchase costs and pre rental works. That is, flat value (at purchase) + purchase costs (a proportion of the whole) + works required to bring the flat to a suitable rental state, might well be the proportion of the whole mortgage you claim for. I think my comments might have invited an alternative view though. Link to comment Share on other sites More sharing options...
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