releasing equity on house for foreign purchase

[seánieboy]

im buying an appartment in Budapest in the next month and i want to release equity on my own house(which is already paid for) to finance this deal I have been told that i cant claim mortgage interest relief on this due to the house not being my principal house that i live in myself but doing my research im led to believe that i can offset this mortgage interest relief against my rental income on this holding would i be right or wrong saying this.

If this is the case do the banks issue me with an interest certificate to do my tax form because if they do it from source it will mean that id be claiming for my own house could someone clarify this for me please my regards seánieboy

 

[DonKing]

Seanieboy,

The tax relief (TRS) at source is a tax relief which is available to people on the their mortgage for their PPR. This has nothing to do with mortgages for Investment properties home or abroad.

If you release equity on your PPR to buy an investment property (at home or abroad) then you are not entitled to the TRS tax relief. You would need to inform your lending institution that they need to cancel TRS for this mortgage (or portion if you still have a portion of PPR mortgage outstanding).

You are allowed to offset the interest of a mortgage used to purchase or renovate an investment property against the rental income received from the investment property when calculating your tax liability for the year.

Your bank will give you an interest statement for the year if you request. I simply used my bank statement(which shows interest charged) when compiling my tax return.


Hope this is helpful

 

[asdfg]

I trust you are declaring this additional income after allowable expenses to the Irish Revenue. Even if the amount is Zero you still have to declare it.

 

[bacchus]

You are allowed to offset the interest of a mortgage used to purchase or renovate an investment property against the rental income received from the investment property when calculating your tax liability for the year.

If there is still mortgage on PPR and some equity is released to buy a second property, how do you split interest between PPR and investment property?
Does the equity release result in a second mortgage account?

 

[ClubMan]

No second mortgage account (unless you arrange it that way) but you need to get details (from the lender) of the interest paid on the full mortgage amount and then apportion this according to the relevant ratio between PPR and investment property. As ever, anybody who doesn't understand the basics of investment property tax matters should (a) perhaps question the advisability of getting into such a business/investment and/or (b) engage the services of a good tax advisor/accounant to advise them on such matters.

 

[bacchus]

No second mortgage account (unless you arrange it that way) but you need to get details (from the lender) of the interest paid on the full mortgage amount and then apportion this according to the relevant ratio between PPR and investment property.

If we consider the case of no second mortgage, details from the lender will be for the overall interest of the mortgage as you said, and the DIY apportioning may be acceptable by Irish Revenue but not by foreign revenue.
I think the second mortage account route is less ambiquious (i.e. easiest to prove it is really for foreign property) when deducting interest of rental income in foreign country to pay tax due in this foreign country.

As ever, anybody who doesn't understand the basics of investment property tax matters should (a) perhaps question the advisability of getting into such a business/investment and/or (b) engage the services of a good tax advisor/accounant to advise them on such matters.

I may be interpreting what you are saying incorrectly (which i hope so), but your statement looks like a critic of people on this forum who are asking questions (sometimes basics) and providing answers (sometimes incorrect)...
Is the purpose of this forum not to learn about such matters throught Q&A and throught a handfull of members who masters the subject being addressed (like Sarah W about mortages)?

I actually think that a lot of people making foreign investment are not informed enough about income tax, CGT and inheritance laws in these foreign countries.
Most of the post on AAM in this section are about buying abroad rather than selling abroad, and touches the subject of potential gain but ignores local market/rules/laws... just my view point but could be wrong.

 

[ClubMan]

the DIY apportioning may be acceptable by Irish Revenue but not by foreign revenue.
I think the second mortage account route is less ambiquious (i.e. easiest to prove it is really for foreign property) when deducting interest of rental income in foreign country to pay tax due in this foreign country.

Could be. I'm not an expert on Irish, never mind foreign, tax matters.

I may be interpreting what you are saying incorrectly (which i hope so), but your statement looks like a critic of people on this forum who are asking questions (sometimes basics) and providing answers (sometimes incorrect)...

I guess it is. Seems to me that some people are getting in above their head with their investment property ventures. Isn't that fair comment?

I actually think that a lot of people making foreign investment are not informed enough about income tax, CGT and inheritance laws in these foreign countries.

So you agree with me? I just extend that view to many who invest locally too.

 

[DonKing]

....... when deducting interest of rental income in foreign country to pay tax due in this foreign country.

You're assuming you can deduct investment mortgage interest from rental income in the foreign country, which is not necessarily the case.

The only other juristicion outside of Ireland which I am reasonably familiar with is Hungary.

In Hungary you pay a flat tax(I'm assuming individual rather than company) irrespective of expenses incurred and mortgage interest is not deducted from rental profit when calculatring tax liability in Hungary.

When you come to square up with Irish Revenue you can deduct the mortgage interset from rental profit similiarly to the way you would do for rental property in Ireland.