UK Landlord Forum / Life

Hi all, I'm new to the forum but have been peering in from the wings for a while.

Perhaps a learned few can help me out.

Can I regard the mortgage deposit for a BTL as a loan made by me?

- I've already paid tax (PAYE ) on it so presumably can offset this against 'cost of arranging the loan' (mortgage) and thus income tax burden
- can I run this debt as a bottom line loss until I've repaid myself?
- its not a capital gain so won't change any future CGT arrangements that may be needed yes?

Thanks for you help

Boz

Right so you charge yourself interest on the deposit to reduce the profit from the rental income, yeah? Sounds like a plan yeah, you dont pay tax on your rental income......... Great.


Okay, what about the new income stream, interest earned on money put as deposit?? That will need to be taxed then, at the same rate as you would pay on your rental income.

You don't give advice to Gary Barlows accountant do you?

Erm. Quite. That's not quite what I mean,t perhaps it wasn't clear in the first post. Or I'm heading up the garden path.

1. I've put a deposit down as part of the mortgage. Can be regarded as investment capital perhaps.
2. I pay tax as normal through PAYE on my normal income (non-BTL) & in saving up that deposit will have already paid income tax.

Once my BTL is net profit generative can I remove my investment capital (up to the equivalent of the deposit I paid) without paying tax (as I've already paid income tax on it)? Given the context of your answer that sounds like a no?! i.e. removing deposit capital through net profit not gross.

...say a bit like loaning my girlfriend  the deposit to buy a property and then wanting my money back - not the situation but might help separating property owner/landlord and the person providing the deposit.

You were talking about a tax shield no? Not what I meant but...

Honestly..... I don't know what to say.

Your grasp of tax matters in this regard is???

So you go along and get the property up and running and you make £10k a year profit. What you are asking is can you take that 10k and " deduct" it from the deposit you put in?

Yes you can, if you want.

BUT it will make no difference to your income tax position. You will still have to pay tax on £10k, as its an income.

The deposit is just part of the investment.

If you bought shares in a company, you got a dividend, you wouldn't ever think that you wouldn't have to pay tax on the dividend until the dividend had covered the initial cost of the shares would you? NO, so why should BTL income be any different?

When your tax paid money was on deposit you got say 3% on £50,000, by investing in a BTL the same £50,000 has meant you have engineered hopefully a 6% return on £150,000. You have moved your investment from cash to property, geared up your returns, and have to pay tax on the income JUST THE SAME.

Are you American?

HMRC actually has a lot of resources on-line that you could wade through... the thing is that your idea smacks of tax evasion and that's not good at this moment in time. Forum members must be seen to provide advice that is sound and obviously legal (and maybe moral - one hopes). It may be a good idea for you to get a view from a specialist Accountant... just because we think you're barking up the wrong tree, doesn't necessarily make it so, but I suspect it is the case. If the Accountant gives you the green light then it should be worth their professional fees. For this kind of query I'd not actually trust the advice of some strangers on an Internet forum... that sounds like a path to a fine. I'd also not progress the idea off your own back, for the same reason.

But you couldn't do it anyway.

There is no deduction box on the Tax Return which says "Capital repayment set against income"

This is the sort of idea people have after a few pints then realize oh, yeah, seriously...

No, there's no specific box for it to go in... but there are plenty of other boxes where figures can be put in and that's where the risk of this temptation would be. A figure of £40,000 going into the "Loan interest and other financial costs" section of the tax return would raise eyebrows immediately you'd expect. I agree that it's not a go'er, but the OP maybe needs a professional to tell them this, not us.

Agreed, although I am a qualified accountant, but as he's not paying my advice counts for little!

Thanks for your responses. To prevent me looking like any more of a tool, let's be clear, I know what HMRC allow me to deduct and I have done; nothing more so am perfectly happy that my approach is correct.

I was talking to a friend the other day (appreciate that this sounds a bit "I've got this friend...") and they paid and attended one of these "learn how to become a property owner/developer and make a €¥₩@ load of money just like me" seminars, & at a pretty cost too. I think these things are a load of bunkum but this is one of the themes that said friend came away with that I thought was most concerning.

I guess their message has either been misinterpreted or worse still ill-informed. Validates that these things are a load of old tosh and ononly serves to line someone's pocket.

I think you've unceremoniously validated my comments to said friend so...erm...thanks again.

The scenario you outline and your friends point misses only one thing.

That the business renting out the property, and probably the title deeds to the property are in the name of a separate legal entity, namely a limited company.

In this scenario you can get interest paid by the company to the individual. The interest paid reduces the tax of the company, but is also still taxable on the individual.

My latest BTL's have been undertaken in this manner, as there are a number of advantages, especially on retirement, where for a basic rate tax payer shareholders can receive dividends from taxed company profits (at 20%) with no tax or national insurance to account for as an individual. As its a business it means that shares can be left on death rather than specific properties, which means the need to sell is reduced in some ways.

Another advantage for me is that I can pay myself a salary, and pay national insurance, as being self employed / lazy for 7 years I wasn't keeping up to date with my "stamp"

They were also quite risky for BTL so I like the idea of my liability being limited.

I think these schemes are the source of funding for some of the "teachers" if they can get your mate to lend the company £50k at 8%, they can invest this through the company in deposits to get mortgages for other BTL, which in effect gives them greater "gearing"

I went on the Homes under the hammer "taster" last year, it was okay, but all about paying £400 for a load of books and telephone support, which I don't need as Obviously I already KNOW EVERYTHING!