So how is mortgage interest allowable as a relief in your tax return in the UK? Well, it depends if you own the prop investment property in your own name, personally, or if you do it for a company. So this was all made much more complicated by George Osborne, a few years ago when he introduced Section 24.
And basically he clobbered. Investment landlords who own property in their own name because for some reason he thought they were a bad thing. In fact, they are a good thing because they’re helping the supply of rental property in the uk, which is really important. In the old days, if a landlord had investment property and mortgage interest, then the full cost of that mortgage interest was allowable.
But, now the situation is none. None of it is liable in the first calculation, but you. Entitled, once you’ve worked at a tax bill, you can take 20% of the mortgage interest. Off your tax payment, which is sort of okay if you’re low rate taxpayer, but if you are a high rate taxpayer, you are getting 20% relief, but you’re paying 40% or 45% tax on your income, your rental income.
So in other words, your clobbered, you’re paying excess tax. This might not be so bad if you just have one or two rental properties, but if you have more and more properties. This could be a significant expense and you could end up paying a fortune in tax. So normally for that reason, most property investors tend to get five properties for a limited company, and for most people, that is by far the better solution, even though it does involve a few more complexities with compliance and so on.
But the good news is that all your mortgage interest relief for a company. Fully deductible against your corporation tax on your rental income for that, those properties. So many people also, if they’ve got lost properties, their name are thinking about. Transitioning them to a company, just selling them to a company that I own.
This has a lot of benefits, but unfortunately being a transfer, then there’s a couple of gain tax on the sale, and there’s stamp duty to pay on the purchase but so it could work out quite expensive, but there are reliefs available if you do it properly, if you are very careful and so on. And you fit the criteria, but it’s very important to get expert advice.
So please get in touch if you are in that situation or you want to explore that. Or have you got any other tax related or cancer related questions? Please post your comments below.