Mortgage interest relief on rental property

Discussion in 'Tax' started by dirty_leo, Feb 12, 2007.

  1. dirty_leo

    dirty_leo Guest

    Hi all,

    I'm planning to buy a new house. And I'd like to hold on to my current house, for which I have a mortgage, to rent it. In case I rent it, do I get any relief on the mortgage interest for the rental property?

    Thanks,
     
  2. ClubMan

    ClubMan Frequent Poster

    Posts:
    43,756
    You need to stop claiming owner occupier mortgage relief on the original mortgage once you vacate it as your PPR. You can offset interest on the outstanding mortgage amount against rental income when doing your rental income tax returns. See the Property Investment FAQ. See this thread on why an interest only morgage might be a good idea for a rental property. If you rent the property out within 5 years of the original purchase as an owner occupied PPR then you are liable for a clawback of stamp duty. If you retain the former PPR property for more than 12 months after vacating it as your PPR then you will be liable for CGT on some portion of any eventual resale gain. You probably really should seek independent, professional advice on the investment and tax issues involved in becoming a landlord/property investor. You definitely should crunch the numbers and consider the other issues involved in becoming a landlord in order to assess if this is a viable venture and one that meets your specific circumstances/needs.
     
  3. dirty_leo

    dirty_leo Guest

    Thanks for the prompt response. Actually I'm currently trying to organize an accountant appointment as you just suggested :). But I wanted to learn a few things about these matters before I go and see someone ;). I'm going to have a look at the links that you provided.

    Thanks,
     
  4. dirty_leo

    dirty_leo Guest

    ClubMan,

    I have a quick question. As you mentioned, I've had my house for 5 years (the one that I'm hoping to rent). But obviously, 5 years ago, I payed much less than what it's worth today. Is there any restriction on the interest relief regarding the purchase value and current mortgage?

    Let's say:
    My house in 2002: 100k
    My house in 2007: 220k
    My mortgage now: 200k

    Thanks,
     
  5. ClubMan

    ClubMan Frequent Poster

    Posts:
    43,756
    If you rent it out today then you can only offset interest on the €200K against rental income. Even if you top-up the mortgage for something else (e.g. to buy a new PPR). You can only offset interest on the loan(s) used to purchase an investment property against rental income from that property. The original purchase price and current market value is irrelevant to this issue.
     
  6. dirty_leo

    dirty_leo Guest

    Oh!

    Let's see if I understood that properly. Please bear with me! :)

    Let's say:
    My house in 2002: 100k
    My mortgage in 2002: 80k
    My house in 2007: 220k
    My mortgage now: 200k (after 2 top-ups)

    So you're saying if I rent it now, I can only offset interest on 80k because that was the original loan used to purchase my house, right?

    Thanks a million for your time and patience! :)
     
  7. ClubMan

    ClubMan Frequent Poster

    Posts:
    43,756
    What were the topups used for? If not for purchasing or renovating the property then you can't claim owner occupier mortgage interest relief on the additional amounts while you are an owner occupier and you cannot offset interest on the additional amounts against rental income while you are a landlord. You need to figure out what portion of your outstanding mortgage is attributable to purchasing/renovating the property. That will be the amount on which interest can be set against rental income. If you can't figure this out yourself then you may need to get independent, professional advice. You should be getting this anyway if you are considering becoming a landlord in my opinion.
     
  8. dirty_leo

    dirty_leo Guest

    Thanks! That's what I'm going to do. I really appreciate your help! ;)