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I am remortgaging my marital home and the ownership will be

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I am remortgaging my marital home and the ownership will be transferred to me under the financial arrangements for divorce. I am aware that for capital gains tax the value will be reset to the new value, so I think that's clear (I asked a previous question to that effect on Justanswer). I will be letting out the house, so am taking out a buy-to-let mortgage (two in fact, one on the house in question and one on another property, to cover the amount of the current loan). However, I don't know what the position will be in terms of how much of the remortgage I will be able to offset against profit when I come to produce my letting accounts. Can you clarify please?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

Thanks for your question

You can offset the interest element of the mortgage from the rental income. So usually a buy to let mortgage is all interest - so this should mean the full amount is allowable against rents.

However - I am not sure where you were advised that the capital gain position starts from the transfer date - that's not strictly true - the gain is treated as having accrued over the whole period of ownership, so say you go on to own the property for a total of 30 years, during which time it was jointly owned and lived in, as the marital home for 18 years - then those 18 years (plus the last 18 months - this was 36 months but due to change from 06/04/2014) are exempt under the private residence rules (of which you would be considered on your half share, then from the time of the transfer - 100% share - of which private lettings relief would be due - as this was once your main residence AND has been let out to tenants (and of course I assume you will declare all rental to HMRC)

Thanks

Sam

Customer: replied 3 years ago.

Thanks, XXXXX XXXXX the accrual issues over CGT and as I have lived there since the property was bought, aside from the last three years, I understand that on the transfer I will be liable for something like six months, which is the total time of residency, plus the three years, with only the few months since then to be liable. I was advised that the new value of the house, for CGT until I sell it, will begin as the new value for the calculation of CGT.


 


However, my question about tax is a bit more complicated - I understand that I can claim all of the interest, but I have increased the loan considerably -we bought the house for £160k and I am remortgaging fo ra total of £340k. Am I going to be able to claim tax relief on all of this £340k, given that?

Expert:  Sam replied 3 years ago.
Hi


Thanks for your response-

No - it will be the original value of the property that capital gains is considered on (which will then be deducted from the future sale value) I have tried to access the original question on which you have been advised this - but At the moment Just Answer is not showing me the earlier questions.

I have added a link here from the HMRC website that details how capital gains are calculated and you can see its the acquisition date - which you acquired this first with your husband - and had a 50% ownership, and then acquired the second half - which you bought from him - so the original date of purchase stands, both for the date the ownership began AND acquisition value
http://www.hmrc.gov.uk/cgt/intro/working-basics.htm

Now onto the loan interest position.
What was the value of the property at the time that the new finance was put in place.
As you van have consideration for a loan UP TO the value of the property at the time the letting began.

So for the loan raised on the property itself - you have to consider whether it was less than the value of the property IF so - fully allowable (interest element) and for the loan raised on the second property again the same principal sits - so the botXXXXX XXXXXne is - what was the value of the property at the time it was let out - this is the defining factor, as to how much of the loan (and the subsequent interest suffered) can be claimed against the rental income

Thanks

Sam

Thanks

Sam


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