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Buy to Let Mortgage Tangle

How to deal with property let at an uncommercial rent

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Client bought a property with an interest-only mortgage that he lets to a family member at less than the market rate.

I have told him that we will have to restrict tax relief on expenses (which exceed income) so that there is nil profit/nil loss.

When I put the figures on the Return I am thinking I will need to leave in charge a net profit equal to 25% of mortgage interest which we claim as a personal relief at basic rate rather than as a property expense. Or should I ignore the interest question and just show total expenses as equal to income?

Any thoughts appreciated.

Replies (5)

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By lionofludesch
05th Nov 2018 16:53

Why are you thinking that ?

If you're happy not to claim the loss, why are you bothered about claiming the interest ?

It amounts to the same answer - zero.

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Replying to lionofludesch:
By Mr_awol
06th Nov 2018 12:28

But for a HR taxpayer it could make a difference - and if they can afford to buy a property and make a loss on it for the sake of a family member (but aren't rich enough to be able to buy it outright) then it's fairly safe to assume that they could well be subject to HR tax - if not before S24, then probably after.

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By SXGuy
05th Nov 2018 16:54

You could work out the tax on 20% of the remaining 25% mortgage interest, leave expenses short so it produces tax liability equal to the value you claim from the remaining 25%. But your right it sounds abit neither here nor there if it ends up being nil anyway.

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By sijolees
06th Nov 2018 10:16

Thanks for the responses - my concern was whether we would be allowing higher rate relief on mortgage interest where we should only be allowing it at the basic rate.

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By Mr_awol
06th Nov 2018 12:23

Technically the expenses aren't allowable, but HMRC do say that they will accept a no gain, no loss position.

Previously, it almost didn't matter which expense heading you restricted but now, as you say, HR relief on interest isn't available.

You should probably restrict each expense line to the proportion of rent:total costs, as this might give the fairest result.

However, it is tempting to claim 100% of the repairs and other expenses and then just use as much interest as you need to get to a breakeven position.

I'm not sure PIM2130 is likely to be all that helpful, but it's probably a start.

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