How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4948
Type Your Tax Question Here...
bigduckontax is online now

I have to pay £14000 to redeem the mortgage on my btl property

Customer Question

I have to pay £14000 to redeem the mortgage on my btl property which is in negative equity. Can I offset this cost to dispose of the property from rental income in the same tax year? Or is this a capital disposal cost? There will be a cost to finance the monies to pay for the shortfall. Can this be offset against positive rental income
I know the sale price will be a capital loss but wondered how financing the shortfall to redeem the mortgage should be treated. Can I offset shortfall in mortgage finance to be paid back to lender from rental income.
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 help you with your question. Mortgages, save the interest paid thereon, do not usually come into the equation. Even the ability to offset the interest against rental i9ncome will be successively withdrawn from April 2017 and be fully effective by 2020. Here is The Telegraph's guidance on the capital situation: 'While most capital expenses – those involved in buying and selling a property, such as the purchase price and agent and legal fees – cannot be used to offset your income tax, many other costs can.' The media are already indicating that the interest changes will make many buy to lets no longer cost effective whilst any capital shortfalls will only exacerbate the situation. The Government is clearly moving against buy to lets as the cash cows they used to be. You cannot offset your mortgage short falls against rental income. A loss for Capital Gains Tax (CGT) purposes is your only benefit from your current situation, but if you have no other gains to offset can only be carried forward. I am so sorry to have to rain on your parade..
Customer: replied 2 years ago.
Please be advised that you are not raining on my parade ! And to suggest this is unnecessary. I was looking for a tax expert to advise not someone to lecture on BTL and the forthcoming interest changes etc.. of which I am fully aware. I am not really interested in the media and telegraph articles. I am also fully aware of what I can offset against rental income already and what is happening in 2017 onwards.The question is a very technical question. If I had to fund this shortfall in the form of a loan then it is actually technically correct that any interest accrued on loans used within the business can be offset against income as long as I could demonstrate that these monies were used wholly and exclusively within the business. This is what I was seeking clarity on. I am fully aware that sales disposal prices etc... are CGT. I am not interested in the situation beyond 2017 and am seeking clarity on the law as it stands now.
Expert:  bigduckontax replied 2 years ago.
I am delighted that you are so well informed and keeping up to date. The law as is stands at the moment and in the future is clear. Apart from the CGT implications the capital shortfalls in your business in this matter are not allowable against income. You may be able to show that they were incurred wholly and exclusively in the conduct of your business, but that does not depart from the fact that such items are not allowable against rental income; never have been, are not now and unlikely to be so in the future. You are trying to mix chalk and cheese and it simply does not work.
Customer: replied 2 years ago.
I think you are misunderstanding my question. I know the Capital shortfalls are not allowable against income. I do however have several rental properties. What I am seeking clarity on which you are not answering is whether the interest that arises on other funds which have been utilised within the business are deductible which I believe they are. Other funds are allowable when the funds are used for other business purposes. If borrow the monies to pay the shortfall then technically these borrowed funds have been used for a business decision within the property portfolio regardless of the capital position which I am not trying to mix up at all.
Customer: replied 2 years ago.
I am not trying to mix Capital disposal costs to offset agains rental at all I am asking about the interest on borrowed funds which have been used to make a business decision within the entire portfolio and as there are other properties rented then the business for now is still ongoing with no restrictions in place as of this tax year.
Expert:  bigduckontax replied 2 years ago.
This is the first time that you have raised the point of other buy to let premises you operate. Naturally, as a whole, all interest is allowable against all income.