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My wife owned (outright, no mortgage) a property that she lived

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My wife owned (outright, no mortgage) a property that she lived in. When we got married, we bought a home that we moved to and are paying for a mortgage. My wife kept her existing home and rented it out.
She is in the process of filling out her tax return. She wants to know if the interest on our residential mortgage could be used as a deduction on her rental home? The argument being that we pay the interest on our private residence only because she continues the rental business - there would be no mortgage to pay if she sold her rental home and we paid off the mortgage on the home we live in.
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
(Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Customer: replied 1 year ago.
Sorry please ignore the "phone request"
Expert:  Sam replied 1 year ago.
Hi Thanks for your questionI am afraid the interest on the residential home cannot be used against the rental income as ir has o bearing on her ability to earn rental income, and to allow this would in essence allow her two bites at the cherry - the benefit of the retal income and no cost to afford her own living expenses ! Only expenses that arise on the actual rental income property can be offset against the rental income (so if there is a mortgage on the rental property - then this interest is allowable) I note you had asked for a phone call which we can still offer if you need - but as this was requested yesterday and the anser is straight forward, I proceeded with a written response for you to accept under the normal route, but let me know if you wish to expand on my answer. Thanks Sam
Customer: replied 1 year ago.
Not sure I totally agree. The following sequence of events could take place:
1) The buy to let is remortgaged
2) The remortgage is used to pay down the mortgage on own property
3) The interest on the buy to let can be expensedWhy is the above scenario allowed while what I outlined before is not?
Expert:  Sam replied 1 year ago.
Hi Thanks for your response. Because the scenerio you refer to sees capital raised from the buy to let which is the asset. But within this scenerio only an amount equal to the original buy to let purchase price (which would include owed monies such as outstanding mortgage) would be considered. But this is NOT the case. - so I am afraid there is no claim Thanks Sam
Customer: replied 1 year ago.
Ok thanks. Is there any relevant TSEM or other guidance from HMRC that outlines this scenario which would confirm that? If you can provide that I'll close out the question
Expert:  Sam replied 1 year ago.
Hi Yes its here http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm And the fact that your current thought process sees you expecting to claim loan interest on a mortgage that relates to a property that you live in and has been raised on this specific purchase - so its has no business connotations at all!The loan has to have been borrowed through the cat of with drawaing capital from the buy to let property - up to ous intial value. I am ex HMRC so am familiar with all aspects of rental income both trade (Scheduel D) and normal rental income (Schedule A) and all the allowable and disallowed expenses that can be offset against each of the tax regimes Thanks Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13810
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 1 year ago.
OK. My wife has not claimed it the expense as a result and it looks like remortgaging won't help once the new loan costs regime is in place. Thanks for your help...

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