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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4808
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Interest from remortgage of a rental property (in my name)

Customer Question

Interest from remortgage of a rental property (in my name) used to develop a second rental property (also in my name) is tax deductable. However, with 2015 Osbourne changes in tax relief for individual landlords (being phased in over coming years), is there an alternative approach that could be more tax efficient. That being, funds are provided to my UK company which can pay for the development. If this scenario is it possible for income expenses to happen within the company and not by myself (an individual) thus out of scope for current tax changes?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to assist you with your question. If you are operating through a company then any interest paid would be allowable against that organisation's Corporation Tax assessment. No adjustment as per the Chancellor's statement would apply. On the other hand Mr Osbourne's proposals for private landlords may, as you clearly surmise, be rather more beneficial. It seem possible that using a corporate envelope is not the wisest route to take, but you should do some comparison calculations to determine the more favourable policy. I do hope that my reply has given you some food for thought.
Customer: replied 2 years ago.
Hi Keith -
I do not understand what you mean by 'On the other hand Mr Osbourne's proposals for private landlords may, as you clearly surmise, be rather more beneficial'. Seems the proposals make private landlords that are higher rate tax payers worse off versus a company as interest payments cannot be fully expensed.
Maybe I should be a bit more, both property begin remortgaged and the property being developed are in my own name and mortgages are in my name. Remortgaging of first property will also be in my own name. What I am asking is if the remortgaged amounts are used to develop the second property, I can expense the remortgage interest amounts on my personal tax return (up to reduced benefit due to Osbourne). However, can I transfer funds into my company, such that company pays for development. And therefore interest payments will be assigned to company (even though I am paying them in my own personal name) so full deduction can be achieved.
Expert:  bigduckontax replied 2 years ago.
That restriction is absolutely correct, but I assumed that you were a basic rate tax payer. However, these rules are not starting to phase in until April 2017.
Certainly you can make a loan to the company to enable it to meet the mortgage payments and repay that loan in due course. Remember any interest paid by the company on that loan will be part of your income for tax purposes.
Customer: replied 2 years ago.
This hasn't answered my question I don't think and yes I am talking about after rules are phased in. If first house has a mortgage of 100 on it and I remortgage to release another 50. Currently that 50 is in my bank account and I am paying mortgage. If I loan the 50 to the company. Then the company pays me interest on the 50? But as the whole 150 mortgage is in my name I am still and will continue to pay interest to mortgage company in my own name.
So what happens on my personal tax return? Before I was expensing interest on 100. Are you saying that after a loan to the company I can continue to declare interest only on the original 100 in my own name (not the 150), and the company can declare interest on the additional 50?
Expert:  bigduckontax replied 2 years ago.
In basic terms, yes.
Customer: replied 2 years ago.
And that implies I also don't have to declare income company pays me to cover interest?
Expert:  bigduckontax replied 2 years ago.
If the company is repaying the loan you made to it then that transaction is outside the scope of UK taxation and is not declared. However, if the company pays you interest on thst loan then the interest is part of your income and must be declared.
Customer: replied 2 years ago.
As explained previously - the refinancing is between me and the mortgage company, so I will continue paying both the original and the remortgage (which was used for development). So the question was can the company pay for the development and therefore be responsible for the mortgage costs (that are in my name).
Expert:  bigduckontax replied 2 years ago.
It could.
Customer: replied 2 years ago.
So I still have no idea how that would work in practise given my example above if first house (in my name) has a mortgage of 100 on it and I remortgage to release another 50 and the company becomes involved in redevelopment.
What would structure be and how would my tax and companies tax returns look in this example.
Customer: replied 2 years ago.
Would like a specific illustrative example of how this could work. Otherwise, please pass back the question so someone else can take it. Thanks
Expert:  bigduckontax replied 2 years ago.
I await a response to my offer.
Customer: replied 2 years ago.
That was my question in the first place. I haven't learn't anything from our correspondence except you are saying that my suggestion is possible without giving any details. Would prefer to have someone else comment who can give me a clearer indication for the price of the question
Expert:  bigduckontax replied 2 years ago.
I will leave the question for one of my colleagues to consider.
Customer: replied 2 years ago.
ok thanks - have you resubmitted my question back?
Expert:  bigduckontax replied 2 years ago.
Yes, it open for any other tax adviser to respond.