Rental Income & Tax

smileyj

I am thinking of renting out my house as I recently moved in with my partner and got married, I have a small mortgage and he has a bigger one, I was hoping to transfer some of the mortgage on his to my property so I have more mortgage interest to offset against my rental income is this ok?
The following is in it70, A revenue guide to rental income, which states what mortgage interest is disallowable, What exactly does this mean and does what I mention above classify as my husband buying from me? any advice is appreciated. We are now jointly assessed and he is the assessable spouse.

''Relief is disallowed as respects interest accruing on or after 6 February 2003[/SIZE]
where the let premises was purchased from the spouse of the person
chargeable in respect of the rental income. However, the disallowance of
interest relief does not apply in the case of legally separated or divorced[/LEFT]
persons.''

Evertonia

So effectively the scenario is as follows:
1) Going to top up motgage on your house
2) Use this to lower o/h mortgage.

You will not be able to claim the interest on any additional top up on your mortgage as relief against rental income. The interest is only claimable, if the mortgage is used to buy the property or carry out repairs to the property that are required in order to be able to rent out the property!

smileyj

Thanks

But this doesn't make sense, what If i sell the house and get a mortgage to buy a new house,is the mortgage interest on the new house allowable against rental income. I could use the money on the sale to pay off the other mortgage and maybe put the rest in a different investment.

Evertonia

If you bought a new house, that you were going to rent and had mortgage on it, all that interest would be claimable as an expense against rental income. This is because the mortgage was taken out to buy house that is been rented. Only mortgage that is wholly for bringing property to rentable state the full interest can be claimed. Obviously if you buy a new house to rent, then the mortgage on this property was incurred to make the property rentable. i.e. had to buy property to rent.

This is same as what will currently happen with the mortgage that you currently have. You will be able to claim that as an expense against rental on that income.

The Top-up of mortgage on your property and additional interest paid, will not be allowed as a claimable expense.

Also as you are going to rent your own house, you will not be able to claim tax relief on source as it will no longer be your principal private residence.

To fully explore all your options, you seek the advice of a qualified professional!

smileyj

Thanks again.

So in hindsight I should have got the maximum mortgage on this property and paid interest only ,so that the property always had mortgage interest on it.

Seems a bit strange.

Barracudaincork

Depends on when you bought the property and if you received 1st time buyers releif but you may have to pay back the stamp duty if you rent the property out.

There is a lot of issues to consider esp as it was once your Principal Private Residence, seeking professional advice is the best thing.

smileyj

Yes I have a good handle on all the other stuff its just that it seems a pity that if we move into my house and rent out the other house we would have very little rental tax payable but if I move in with him I would have lots of rental tax payable as I cannot shift one mortgage from one property to another. Also if my mortgage is say 1000 per month and my rental income is 1000 per month . i will be in a level position but will have to pay tax on the 1000 so i will be down in money terms.

Mr. Incognito

Look,

The first conderation is how long have you had the house. If you have availed of stamp duty first time buyers relief this can be clawed back if the property becomes a rental/ invetment property within 2 years (used to be 5)

You are married and assessed jointly. This means in the eyes of the taxman you are one person. Inter spouse trasfers are tax free, from ALL taxes.

If you are over the clawback period you can convert the home into a rental property and the interest on your loans can be set off against the rental income and the net amount is taxed. There are a number of other expenses that can be set off against this rental income too.

Your plan is to get your husband to get a loan to buy your house. Section 97(2G)(2H) TCA 97 counters contrived arrangements where one spouse buys the other's interest in the family home using a loan and letting that proerty. It specifically disallows interest as a deduction in these circumstances. That's what the Revenue leaflet is referring to.

That's a brief over-view. If you have tax specific questions seek professional guidance and do not rely on boards.

smileyj

Thanks for the further advice, I think I will look for professional advice as you have contradicted earlier replys, you are saying you can use mortgage interest on both properties as a deduction against rental income on one.

I appreciate that advice offered on message boards is not 100% reliable ,advice from experts is not fool proof either.

But its good crack and maybe I'll get some good advice.

Can anyone else comfirm what incognito said ''interest on your loans can be set off against the rental income and the net amount is taxed'' Mortgage interest on the other property is allowed as well. If hes right I will be very happy.

Mr. Incognito

Thanks for the further advice, I think I will look for professional advice as you have contradicted earlier replys, you are saying you can use mortgage interest on both properties as a deduction against rental income on one.

Whoa Lady- I DID NOT say that. This is why you need to seek a professional.

Mortagage interest on your RENTAL property only can be set off against RENTAL income. Why would mortgage on your personal home be a deduction against your rent.

smileyj

Got your attention,

Ok who is the rental income assessable on, me as the rental property would be in my name or is it an the assessable spouse or is it split evenly.

Mr. Incognito

This means in the eyes of the taxman you are one person

From above.

smileyj

Yes I need to find the tax returns with just one column saying one person, all the tax returns I've seen have two columns for assesed person and spouse but obviously you have introduced a new one called one person, fair play to you.

I'm only messing with you, thanks for your input

Barracudaincork

Mr Incognito knows what he is talking about, you only have to look at his previous posts to know that, you being smart to him re the one person thing doesnt impress anyone, he is trying to help.

Get professional advice as i think you need to talk it through with someone as you appear to misinterupt what is written (which is the case with a lot of non tax professionals) or only hear what you want to hear (which yet again we all do at times). But tax is not an area you can do that in, you need to see a professional.