Rental Deductions - Joint Mortgage

Rental Deductions - Joint Mortgage

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Hi, my client solely owns 4 properties which are rented out. However, the mortgages for these properties are in both her and her husbands names. Can she still claim the full amount of mortgage interest as a deduction against the rental profits?

Any help is greatly appreciated.

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Euan's picture
By Euan MacLennan
11th Jan 2012 11:14

Are you sure?

How can the husband give a valid mortgage on a property in which he has no beneficial interest?

I would check both the mortgage loan documents for the exact terms and the Land Registry for the title to the properties.  It may be that the husband has joint title and half of the rental income needs to be declared on his tax return, unless a Declaration of Trust exists and Form 17 has been filed, in which case you might wish to see those documents as well.

However, if this is genuinely a loan to both husband and wife and the properties are in her sole name, I think you can claim all the interest paid against the rental income.

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Replying to K McLeod:
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By Accrual Intentions
11th Jan 2012 11:22

Having only 3-4 years history of the property at hand here I can only assume that at some point in the past it had been jointly owned but that the husband transferred the legal title over to the wife for tax efficiency purposes.

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By mn2taxhbj
11th Jan 2012 12:14

Agree with Euan

You need to check the paper trail with the Land Registry and any solicitors who have acted for the couple.  The mortgage providers may well be interested in this as well.

You might also wish to check with the client the purpose of the mortgage - perhaps the husband's half was for some other purpose which would make it unallowable in any event.

 

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By tonycourt
11th Jan 2012 15:12

Another way to look at it

 While I generally concur with what has been said so far I have the following observation.

A mortgage is a charge over an asset, most commonly land or buildings, in other words the security for a loan; it is not the loan itself. I was told by a solicitor who worked for some years in a firm specialising in mortgages that it wasn't uncommon for a joint loan to be secured on property owned by just one of the parties involved. I can't comment on whether this happened legitimately or not, but the fact is it happens - or at least it did before the recent tighteningof lending policies by banks etc.

The point I'm making is that tax isn't concerned with the rights or wrongs of how a loan is secured or obtained, it simply applies to the consequences. Therefore if the loan was used for a tax allowable purpose, e.g., purchasing a rental property, and your client pays the interest on the loan then it will be deductible - subject of course to the usual restrictions.

Nonetheless I agree with the previous commentators that you should investigate the history of the loan to make sure it was originally used for the purpose of purchasing, or other allowable purpose linked to the rental business e.g., funding repairs to the properties in question.

If there's doubt over tax deductibility because of the “joint issue” your client could refinance in their sole name to overcome that problem.

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