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Buying second home

Lobsterboy1

Established Member
Hi, I am looking to remortgage my house to buy a second home to rent to my parents. They are in their 60s and have lived in Portugal for the last 10 years but are looking to sell their apartment over there and move back to England. With their age they were looking to rent over here when they move back and live off the money they get for their apartment. So rather than pay rent to a stranger I thought I would remortgage my house, buy another house and them live there paying me enough to cover the extra on the mortgage. Seems pretty straightforward I think, but will the money they pay me be taxable if they are only covering the mortgage payment. I understand that I will have to pay capital gains tax if I ever sell the house, but was thinking whenever the inevitable happens to them my Son or Daughter might want to live there. I wondering if there is any other tax to pay, any one else have any experience with this. Cheers
 

Rasczak

Distinguished Member
Any money paid in rent can be offset against the INTEREST portion of your mortgage - but not payments against the actual sum.
 

Lobsterboy1

Established Member
I am employed but my Wife is self employed but her business is pretty straight forward so we do her self assessment form, but working the taxable amount out sounds a bit above me so would have to get a accountant. Another idea was to let them live there rent free but "give" my children some money every month ;).
 

Rasczak

Distinguished Member
I am employed but my Wife is self employed but her business is pretty straight forward so we do her self assessment form, but working the taxable amount out sounds a bit above me so would have to get a accountant. Another idea was to let them live there rent free but "give" my children some money every month ;).
Awhile since I saw a mortgage statement but I believe it would be on your monthly statement, e.g.

Starting balance = £50,000
Interest charge = £50.00
Payment = £500.00
End balance = £49,550

...so that month you would claim £50. Rinse and repeat for each month to get the interest charged sum. Then add any allowed expenses (you can find details on the Inland Revenue website) or look on any of the UK Landlord forums. When you do your tax return there is a dedicated section for property income so it is all very straight-forward.

What you will want to do is ensure you get the 'right' mortgage product for your needs, i.e. one that allows you to rent the property out long term. Also, are you sure you want a landlord/tenant arrangement with your parents?

EDIT: Can I just clarify if the mortgage will be on the property you will be renting to your parents? I don't think you can claim interest on a mortgage that is on a different property from that rented. If that is the case you would need to look for an alternative arrangement.
 
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Lobsterboy1

Established Member
I was going to remortgage my house I live in for the value of the other house and buy it with the money so the monthly payments on the mortgage on my house would go up. But the second house would be bought outright with no mortgage on it. Or have I got completely wrong. I would not want any landlord/tennent agree ment as want to make it as simple as we can.
 

Rasczak

Distinguished Member
I was going to remortgage my house I live in for the value of the other house with the money so the monthly payments on the mortgage on my house would go up. But the second house would be bought outright with no mortgage on it. Or have I got completely wrong. I would not want any landlord/tennent agree ment as want to make it as simple as we can.
You might want to discuss this with a financial advisor - or someone better qualified than me anyway. In my (very limited) experience I have only ever seen the mortgage/loan on the rented property so can't be of further help.
 

Lobsterboy1

Established Member
Ok thanks for your help so far, I think I might be better off seeing a financial advisor as it seems like it easy to get it very wrong.
 

Marvin the Android

Prominent Member
I have never gotten a straight answer on this but be wary of what should happen should they die. It could be seen as trying to avoid inheritance tax. I have no idea either way but it seems like a grey area so you might want to ask a few professionals and come to your own conclusion.

Personally I see inheritance tax as the work of the devil and see nothing wrong in what you are suggesting. Then again the inland revenue don't seem to wander around to the sound of trumpets and choral singing whilst flapping their wings in the light of their halos.

Cheers,

Tony.
 

imightbewrong

Distinguished Member
I have never gotten a straight answer on this but be wary of what should happen should they die. It could be seen as trying to avoid inheritance tax. I have no idea either way but it seems like a grey area so you might want to ask a few professionals and come to your own conclusion.

Personally I see inheritance tax as the work of the devil and see nothing wrong in what you are suggesting. Then again the inland revenue don't seem to wander around to the sound of trumpets and choral singing whilst flapping their wings in the light of their halos.

Cheers,

Tony.

You are probably thinking of the case where patents 'give' their house to their children, but then keep living there - which is definitely bad (IHT avoidance) unless they pay commercial rent. That isn't the case here though - it is his own property from the start.
 

Marvin the Android

Prominent Member
You are probably thinking of the case where patents 'give' their house to their children, but then keep living there - which is definitely bad (IHT avoidance) unless they pay commercial rent. That isn't the case here though - it is his own property from the start.

Like I said I consider it is a grey area and I have never gotten a straight answer but I am not thinking specifically of that case although they could be considered to be similar I guess.

Cheers,

Tony.
 

imightbewrong

Distinguished Member
Another idea was to let them live there rent free but "give" my children some money every month ;).

There could be IHT involved here - although a certain level of gifting is allowed without attracting IHT. Additionally, one can pay another a percentage of a regular income (such as a pension) with no IHT liability as long as they still have enough to live on (or something like that - HMRC web have all the facts)
 

Marvin the Android

Prominent Member
(or something like that - HMRC web have all the facts)

I find that generally speaking HMRC and in particular their website only has the rules or at least in most case their interpretation of the rules/laws. Facts generally don't come into it unless they have tested it in a court of law and set precedent.

Cheers,

Tony.
 

imightbewrong

Distinguished Member
In this particular case they have the facts - or did when I last checked.
 

Lobsterboy1

Established Member
I looked at a buy to let mortgage but they want big deposits and the interest rates are much higher than my current mortgage so thought it was in both my and my parents interests to do it this way to make it as cheap as we could for both of us. After a lot of googling I am still none the wiser like you said it seems to be a grey area and none of the government websites have this as a option. After speaking again to my parents tonight ( int Skype great ) they know people that are in the the same situation that have taken on a joint mortgage on a property with a father and son but I would pay 99% of the mortgage and he would pay 1%. I didn't really get what this would achieve but might seem clearer in the morning the bottle of rosé won't have helped.
 

kopchoir

Banned
Where abouts is the apartment in Portugal I could help you in selling/renting it out
 

DarenD

Prominent Member
Im sure you can avoid tax by 'doing it up' while they live there. You only pay tax on the profit so repairs/improvements will reduce that footprint.
 

Mr.D

Distinguished Member
I agree that IHT is a frankly evil aspect of taxation in this country.

I'm considering what the options are for my elderly mother ; taking over her mortgage payments ( after being screwed by an endowment mortgage , then her pension under delivering after working until her mid sixties).

Then when she tries to leave her house to her grand daughters after struggling to pay it for most of her life the taxman will want a slice...assuming they haven't already made her sell it to pay for her care in her old age.
 

Epicurus

Prominent Member
Im sure you can avoid tax by 'doing it up' while they live there. You only pay tax on the profit so repairs/improvements will reduce that footprint.

Indeed, letting a property can be an extremely expensive venture especially if you have fussy tenants ;)

Just make sure you keep a file with all necessary receipts to produce if needed.
 

imightbewrong

Distinguished Member
I looked at a buy to let mortgage but they want big deposits and the interest rates are much higher than my current mortgage

Your mortgage lender well want to know why you are releasing the funds - when you tell them it's too but a btl property, they may/probably will say no.
 

Duncan G

Prominent Member
I agree that IHT is a frankly evil aspect of taxation in this country.

I'm considering what the options are for my elderly mother ; taking over her mortgage payments ( after being screwed by an endowment mortgage , then her pension under delivering after working until her mid sixties).

Then when she tries to leave her house to her grand daughters after struggling to pay it for most of her life the taxman will want a slice...assuming they haven't already made her sell it to pay for her care in her old age.

Has she checked if she can claim Pension Credit as this includes help with mortgage interest.
 

Duncan G

Prominent Member
I looked at a buy to let mortgage but they want big deposits and the interest rates are much higher than my current mortgage so thought it was in both my and my parents interests to do it this way to make it as cheap as we could for both of us. After a lot of googling I am still none the wiser like you said it seems to be a grey area and none of the government websites have this as a option. After speaking again to my parents tonight ( int Skype great ) they know people that are in the the same situation that have taken on a joint mortgage on a property with a father and son but I would pay 99% of the mortgage and he would pay 1%. I didn't really get what this would achieve but might seem clearer in the morning the bottle of rosé won't have helped.

Another option is your parents use the money from the sale of the Portugal property as a deposit to buy a place in the UK with you as guarantor for the mortgage. That may reduce your financial commitment.
 

clc.sheff

Distinguished Member
Im sure you can avoid tax by 'doing it up' while they live there. You only pay tax on the profit so repairs/improvements will reduce that footprint.

Just a note of caution here. You can only get relief on repairing what is already there or replacing with similar. Any work viewed as upgrading to the property is not deductable.
 

Lobsterboy1

Established Member
Thanks for all the advice, I am still unsure what to do so I am going to speak to a financial adviser and see what my options are. Thanks again, Dean.
 

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