Loan Interest - Buy to Let remortgage

Overdrawn Capital Account

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An umarried couple bought a property together for £115K.  They initially borrowed £108K to fund this purchase.  The property was immediately let as a BTL & she declared 100% of the income/costs on her Return on the basis that she was the beneficial owner.

They then split up & she bought him out. She borrowed a further £51K to fund this, so total lending of £159K.

Is tax relief due on the interest on the full borrowing of £159K or should it be restricted to £115K.

 

Replies (7)

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By johngroganjga
31st May 2018 15:27

Your question does not make a lot of sense, because you say they bought the property “together”, whereupon “she was the beneficial owner”. Then the beneficial owner paid a lot of money to acquire something she was apparently already the sole beneficial owner of!

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Replying to johngroganjga:
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By Wall1690
31st May 2018 15:33

I get your point. I need to check the actual ownership. Even if beneficial ownership was joint, as an unmarried couple they decided (rightly or wrongly) to report 100% of the income on her Return.

I'm not sure if this is immediately relevant to the initial question though. Total borrowing now exceeds the initial capital value of the property when it was first brought into the business. Therefore, should tax relief be restricted on the loan interest?

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Replying to Wall1690:
By ireallyshouldknowthisbut
31st May 2018 15:41

Its very relevant.

Either she bought the whole of the property at the start so that is her base cost for the balance sheet, or bought the property into two tranches, so first part at the first price, second part at the second price paid.

If you can solve the ownership issue, you have solved the tax issue, and perhaps correct the returns if applicable.

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Replying to ireallyshouldknowthisbut:
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By Tax Dragon
01st Jun 2018 06:57

If the OP struggles to see that point, perhaps s/he could ponder why the client has 100% of the original borrowing - and then had to borrow some more.

At least one member of the set comprising HMRC, the lender(s), the client and the OP has been lied to; it's possible that at least one has been defrauded.

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Red Leader
By Red Leader
31st May 2018 16:51

PIM1030.

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By Wall1690
01st Jun 2018 09:00

I agree something doesn't add up & questions need to be asked. But I suspect I won't be allowed to ask them.

What if legal/beneficial ownership was joint but they decided between them that she would be entitled to 100% of the income. As an unmarried couple I'm being told they can do so without any issue.

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Replying to Wall1690:
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By Tax Dragon
01st Jun 2018 13:45

Wall1690 wrote:

I won't be allowed...


Not a position any employer should put their employees in. You have my sympathy.

Wall1690 wrote:

I'm being told...


Now we know the (sub)set of those being lied to includes the OP.
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