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Where Taxpayers and Advisers Meet

Mortgae on own porerty to buy BTL

guardog
Posts: 5
Joined: Thu Jul 03, 2014 4:58 pm

Mortgae on own porerty to buy BTL

Postby guardog » Tue Sep 22, 2015 12:36 pm

Hi

I wonder if anyone can help me.

I took out a mortgage on our own property with my wife during the tax year 2014/2015. The proceeds were used to purchase a BTL and I understand that the interest will be an allowable deduction for that particular year. However we bought the BTL in not only our names but also in the names of our 2 children so the deeds etc. are in all 4 names.

My question is when we prepare our tax returns for 2014/15 any profit will be split 4 ways but our profit will be less as the mortgage interest I believe should be divided equally between myself and my wife. Is it possible to divide the mortgage interest so that it is split 4 ways rather than 2 and if we do would it be deemed as a gift and therefore in the event of either of us passing away be a charge to IHT.

Thanks
GD

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: Mortgae on own porerty to buy BTL

Postby King_Maker » Tue Sep 22, 2015 12:43 pm

I assume the children are over 18 years old?

If so, what was the intention for splitting profits/losses - both capital and income?

Are you aware of the intended Budget changes for interest deductibility from 2016-17?

guardog
Posts: 5
Joined: Thu Jul 03, 2014 4:58 pm

Re: Mortgae on own porerty to buy BTL

Postby guardog » Tue Sep 22, 2015 1:45 pm

Firstly thanks for your prompt response.

Both children are over 18 and both put in amounts equally for the deposit as we did, so all 4 of us put in the same about. In addition to make up the required deposit we also put in a substantial sum to bring the deposit up to the level that would enable all 4 of us to get a mortgage and buy the property for the price negotiated. The interest on this mortgage would be divided equally through the I & E account which of course for the year 2014/15 be allowable.

I am fully aware of the tax from 15/16 onwards but its 14/15 that I am looking at now

The question that I asked was it permissible to put through the mortgage interest that we ( me + wife) took out on our own home as an expense against income. I believe that this is fine but rather than the interest being divided between the 2 of us can we divide it between the 4 of us or could this be an IHT problem or simply not allowable and only me and my wife can claim this

The intention then was for the profit/loss to be divided equally between the 4 (and on sale the additional amount that we put in as deposit would be repaid) and the gain would again be divided equally.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: Mortgae on own porerty to buy BTL

Postby King_Maker » Tue Sep 22, 2015 2:26 pm

The children are not parties to the mortgage.

The problem is likely to be that you and your wife have effectively lent money so your two children can buy their share of the property - that is not an allowable purpose, in HMRC's view. So, only 50% of the interest is deductible.

Did you speak to your accountant before undertaking this project?

guardog
Posts: 5
Joined: Thu Jul 03, 2014 4:58 pm

Re: Mortgae on own porerty to buy BTL

Postby guardog » Tue Sep 22, 2015 2:58 pm

Thanks for that and yes I did speak to my accountant before hand. Of course no one knew at the time what Osborne had in mind otherwise things would have been somewhat different.

He did point out that the only we would be able to get the full tax relief on the amount we put up and that the children couldn't but that was not going to deter my better(?) half from going through.


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