Refinancing to get a better rate, tax treatment advise requested?

S

Seamus00

Registered User
Messages
2
Hi,

I would would like input if anyone has experience of this issue. The figure/situation below is simplified but issue the same.

Situation:
I have 100k at 6% rate on a buy to let property loan. The 6% interest is hurting me. I am buying a new house as a principal private residence for 200k and need no finance to do this.

Potential Solution:
I was thus thinking of taking out a home mortgage at 4% for 100k at the same time as the house purchase for 200k. The 100k would then be immediately paid of the commercial loan thereby saving me 1% per year for 30 years. The bank is fine with this, but the security and purpose of the loan will state the new house and not specifically the buy to let property i.e. it will be considered by them a home mortgage.

Question
My question is, can I still use the 4% interest charge as a deductible against the rental income from the original property. I see this as refinancing, but will the tax man?
and how do I help him/her see this as refinancing?

I have received advise, but there was no clear answer.
 
Yes, the interest will still be deductible.

Revenue recognise the distinction between security for funds and purpose of funds.
 
Thanks good feedback. I was nervous in relation to the purpose and the detail of how the loan will be reduced.

In practice what will have to happen is that I will transfer 200k to solicitor and the bank will transfer 100k. The solicitor will then pay the 200k to buy the house and a 100k to reduce down the loan. So my concern was on that revenue might argue that the 100k from the bank actually went on the house purchase. This seems not to be the case from your input. Cheers.
 
If you take out a loan today from EBS at 4% to pay off a Buy to Let loan at 6%, then it's clearly a refinancing of a loan and it continues to be tax deductible.

So if you buy a house with €200k cash and later remortgage it, then there is no issue.

However, you have €200k cash.
You are going to pay €100k off your buy to let mortgage
You are going to borrow €100k to buy the house

In your head, that is a refinance, but it's not on paper, so I think Revenue would disallow it.

To be clear, you should buy the house for cash first and then remortgage it.

Brendan
 
A bigger question might be whether you should have a buy to let property at all if you need to borrow at 6% or 4% to finance it.

If you provide all the figures, we could give you some views on it.

Not sure why you are borrowing at 4% when the LTV will be 50%.

Brendan
 
Hi Brendan,

The slight issue with doing exactly as you say, is then the bank considers it radically differently and you don't get the same rate, this is a technicality with the bank. So almost no point doing it. The rates/figures used are not exact and I could be getting slightly lower than 4% if considered a mortgage by the bank.
 
Hi Brendan,

I am in a similar situation and would appreciate any advise you can give. Have a small investment mortgage (roughly 100k) with a rate of over 5%.

I was thinking of refinancing by topping up the mortgage on my principal private residence. However my accountant advised that Revenue would not view the 100k additional load as being linked to the investment property so in effect no interest relief would be allowed.

That seems harsh to me but I can see the rationale if they consider it to be linked to my residential property.

What do you think?
 
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