How to split re-mortgage expense for tenants in common

[bibousig]

Hi

I m currently the sole owner of a property in which both my boyfriend and I (unmarried) live.

We are contemplating buying another property as a buy to let, which would be funded as follows:
- 30% deposit coming from re-mortgaging my current property
- 70% joint BTL mortgage on the BTL property itself

We would therefore be tenants in common, with me owning 65% of the shares and my partner owning the remaining 35%. To note as well that I am in a higher tax bracket than my partner.

I have been going through various posts (in particular this one http://www.taxationweb.co.uk/forum/view ... e+Interest) but still am not very clear on the following:

Can we expense the full re-mortgage interest (which is on my own property)? Before I started reading on it, I would have expected re-nortgage interest to be simply deducted from the income that would then be shared between my partner and I on our separate self-assessments, but now I am not so clear as I have read some mentions that only the part of the re-mortgage interests commensurate with my share could be used (i.e. 65% if we use same income allocation ratio as ownership share). Thanks in advance for any views on this.

In addition, as we are not married, I understand that we could in theory agree in writing to distribute income in a different allocation than the ownership itself (e.g. 90/10). Depending on the answer to the above, how would that work in effect?

Using figures as it may be clearer than the above, if we assume £300 re-mortgage interest per month:
1/ if we use standard 65/35 income allocation, does it mean that:
a. I would expense 65% of 300, i.e. £195, and my partner would expense 35% of £300, i.e. £105 ? Or
b. that I would expense only 65% of 300, i.e. £195, and that my partner can expense 0 of that amount because the re-mortgage is in my name? Or
c. that I would expense the whole £300 and my partner 0 because the re-mortgage is in my name?

2/ Same question, but if we use a 10/90 income allocation, does it mean that:
a. I would expense 10% of 300, i.e. £30, and my partner would expense 90% of £300, i.e. £270 ? Or
b. that I would expense only 10% of 300, i.e. £30, and that my partner can expense 0 of that amount because the re-mortgage is in my name? Or
c. that I would expense the whole £300 and my partner 0 because the re-mortgage is in my name?


Many thanks in advance for your help and sorry if the post is not very clear.

[section 44]

Can we expense the full re-mortgage interest (which is on my own property)?

Arguably, yes.

Do you have an agreement in principle to remortgage your home to pay the deposit on a let property? Recently many lenders seem quite restrictive with regards to what costs they will allow you to remortgage your home for

In addition, as we are not married, I understand that we could in theory agree in writing to distribute income in a different allocation than the ownership itself (e.g. 90/10). Depending on the answer to the above, how would that work in effect?

You would agree to share the income/profit in a different allocation to your shares of the beneficial interest.

[bibousig]

Thank you for your reply

Do you have an agreement in principle to remortgage your home to pay the deposit on a let property? Recently many lenders seem quite restrictive with regards to what costs they will allow you to remortgage your home for

We have met with my bank and they seemed quite ok with the idea (of course we will need a formal acceptance at a later stage but it didn't seem to surprise them). Also the re-mortgage would be strictly under 70% LTV of my property.

You would agree to share the income/profit in a different allocation to your shares of the beneficial interest.

Yes, exactly, we would make an agreement in writing.

[Ian McTernan CTA]

Probably getting a little over complicated in your thinking.

If the purchase price is £100k, then loan interest on up to £100k is allowable against the rental income, all other things being equal. The source of the funds does not have to be relevant.

Regarding splitting the income, I'd suggest you read this: http://www.property-tax-portal.co.uk/ta ... e179.shtml (copy and paste the link).

You may wish to review your mortgage application if you wish to change the beneficial ownership as this could affect the lender's decision to lend the money.

[section 44]

The source of the funds does not have to be relevant.

How the funds are secured is not relevant.