Tax Relief Question


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R

Ronald Raygun

Rich said:
If my employer requires me to relocate to an area with much more expensive
house prices, is there any way I can offset the cost of increase in
mortgage for similar house in the new area ?
No. Well, yes, you could be offered a higher salary, but it would not
qualify for tax relief, so the salary increase would need to be calculated
in such a way that, net of tax and NI, it would cover the difference.

Or you could just rent. Or refuse to move, and end up being
constructively dismissed and bag a huge compensation payment (tax free),
and get a different job in the area you know and love.
 
N

Norman Wells

Rich said:
If my employer requires me to relocate to an area with much more expensive
house prices, is there any way I can offset the cost of increase in
mortgage for similar house in the new area ?

All the other costs would be met by my employer, so this question is
specifically related to the difference in house price.
How keen are they to keep you? How keen are you to remain with them?

If they are keen to keep you, then you should point out the problem and ask
how the company can help you move, for example by them paying you a
'mortgage equalisation allowance' or something for, say, five years, the
implication being that you will leave if they don't. If you ask and they
refuse, you'll at least know what they really think of you, so you can't
lose.

Unless it is specifically in your contract of employment that they can make
you relocate, they would be attempting to alter that contract unilaterally,
and you don't have to accept. That puts all details of your contract back
in the melting pot, and you are free to negotiate whatever terms would be
acceptable to both sides.
 
R

Rich

How keen are they to keep you? How keen are you to remain with them?

If they are keen to keep you, then you should point out the problem and
ask how the company can help you move, for example by them paying you a
'mortgage equalisation allowance' or something for, say, five years, the
implication being that you will leave if they don't. If you ask and they
refuse, you'll at least know what they really think of you, so you can't
lose.

Unless it is specifically in your contract of employment that they can
make you relocate, they would be attempting to alter that contract
unilaterally, and you don't have to accept. That puts all details of your
contract back in the melting pot, and you are free to negotiate whatever
terms would be acceptable to both sides.
I'm not unhappy with the move, just simply wondering if I can in anyway
offset the higher price or mortgage payments against tax. This will help in
decision making.

Thanks for the replies so far.

--
Rich
http://www.richdavies.com
http://www.richdavies.com/online-mortgage-calculator.htm



--
 
R

Robin T Cox

<snipped>

There's an interesting angle in this article:

http://money.scotsman.com/scotsman/articles/articledisplay.jsp?article_id=7287085&section=Tax&prependForce=SM_XML_
http://tinyurl.com/2m3wor

<quote>
Finally, you may be moving into a new home and decide not to sell your own
home but rather to begin letting it out.

If you were to raise a mortgage on your "old" home (or top-up the existing
one), tax relief can be claimed on the full amount of the mortgage
interest against the rents receivable, even though the funds may be used
to help you to buy your new main residence.
</quote>
 
Y

Yellow

Rich [nosp@amnospam.net] said:
I'm not unhappy with the move, just simply wondering if I can in anyway
offset the higher price or mortgage payments against tax. This will help in
decision making.

Thanks for the replies so far.
Some areas are more expensive than others but unfortunately, those of us
who live in the more pricey ones don't get to pay less tax on our income
because of it.

Nice idea though and would probably be a vote winner. :)
 
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J

John Boyle

Robin T Cox said:
<snipped>

There's an interesting angle in this article:

http://money.scotsman.com/scotsman/articles/articledisplay.jsp?article_i
d=7287085&section=Tax&prependForce=SM_XML_
http://tinyurl.com/2m3wor

<quote>
Finally, you may be moving into a new home and decide not to sell your own
home but rather to begin letting it out.

If you were to raise a mortgage on your "old" home (or top-up the existing
one), tax relief can be claimed on the full amount of the mortgage
interest against the rents receivable, even though the funds may be used
to help you to buy your new main residence.
</quote>
Be aware that the maximum you can borrow is limited to the balance of
your capital account within the buy to let business. If (say) the
business had run at a loss for a number of years, thereby reducing the
owner's capital account, then you could only borrow the lower amount,
even though the property value may well be much more.
 
W

whitely525

Rich [n...@amnospam.net] said:






I'm not unhappy with the move, just simply wondering if I can in anyway
offset the higher price or mortgage payments against tax. This will help in
decision making.
Thanks for the replies so far.
Some areas are more expensive than others but unfortunately, those of us
who live in the more pricey ones don't get to pay less tax on our income
because of it.

Nice idea though and would probably be a vote winner. :)
Dumb idea. No logic or reason to it. And it would only inflate the
cost of housing in those areas where it is already high.
 
R

Ronald Raygun

Rich said:
I'd say it was a genuine work related expense.
You're mistaken. Where you choose to live is not "work-related".
You could choose to stay living where you are while still moving
jobs to the new site, and commute 150 miles to work each day. The
additional cost would not count as "business travel".
Hey, it was worth a try anyway.
Sure, it can't hurt to ask, even if the answer hurts. :)
 
Y

Yellow

Rich [nosp@amnospam.net] said:
I'd say it was a genuine work related expense. Hey, it was worth a try
anyway.
If such an argument was indeed valid (which it isn't as you choose where
to live) wouldn't we *all* say that?
 
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google

Be aware that the maximum you can borrow is limited to the balance of
your capital account within the buy to let business. If (say) the
business had run at a loss for a number of years, thereby reducing the
owner's capital account, then you could only borrow the lower amount,
even though the property value may well be much more.
Do you have a link or good book that explains this better?
I found this via google: http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm
but it's not very obvious to me what is really going on.

Does this mean that if I were to borrow money in the future (for
anything) I could potentially offset the interest on an amount equal
to the value of the property I let (at the date I started letting it)
against the property income? Does the loan have to be a mortgage
secured on the property or can this be a purely bookkeeping exercise?

(In particular, does this mean that I messed up when I bought my home
and started to let my previous home where I could have been claiming
more of the interest I was paying against tax instead of just claiming
for the outstanding mortgage on the property I was letting. Oh well,
too late now.)

Tim.
 
J

John Boyle

In message said:
Do you have a link or good book that explains this better?
I found this via google: http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm
but it's not very obvious to me what is really going on.
This might help :

http://www.taxationweb.co.uk/forum/discuss.php?id=5965

And look at the very bottom of this

http://business.timesonline.co.uk/tol/business/money/tax/article1874656.e
ce

, the bit that says "Suppose your property has increased in value and
you took up more funds on your mortgage, withdrawing the released
capital from the business, thereby causing your Capital Account to
become overdrawn. HM Revenue and Customs state that the interest claim
would be restricted in this case."
Does this mean that if I were to borrow money in the future (for
anything) I could potentially offset the interest on an amount equal
to the value of the property I let (at the date I started letting it)
against the property income?
Yes.
Does the loan have to be a mortgage
secured on the property or can this be a purely bookkeeping exercise?
It has to be a loan taken in order to withdraw from the capital account.
(In particular, does this mean that I messed up when I bought my home
and started to let my previous home where I could have been claiming
more of the interest I was paying against tax instead of just claiming
for the outstanding mortgage on the property I was letting. Oh well,
too late now.)
possibly.
 
G

google

Thanks for that. I think I understand the situation better now. I was
under the impression that the maximum tax deductable borrowing when I
moved out of my first home was the size of the existing mortgage,
rather than the value of the property when I moved out.

I'm not absolutely clear what would have happened if I had "increased"
the mortgage to maximum because for five years or so I'd then have
been making a loss because the interest payments I'd have been
claiming would have exceeded the rent. I can't tell if that would have
meant my capital account would have gone overdrawn and whether that
overdrawn amount would still have been tax deductable.

(This is somewhat academic now as the mortgage has been completely
paid off)
Although I don't really understand the logic behind having interest
only mortgage so you pay less tax. Obviously it makes sense to pay off
non tax-deductable borrowings first but, IME, you pay more tax but
make more profit if you pay off the BTL mortgage. Perhaps the
assumption is that everybody with a BTL mortgage will have a normal
mortgage on their main home as well? But I would have thought that the
people who can afford to invest in BTL are the same people who can
afford to make serious inroads into paying off their mortgage early
and so there are likely to be lots of people where 100% of their
borrowing is tax deductable. ISTM that many people want to minimize
tax rather than maximize profit.

(or perhaps I'm just odd in not liking being in debt, even a mortgaged
debt. I'll accept it as a necessary evil but it was a most satisfying
feeling when the balance finally went to 0)

Tim.
 
R

Ronald Raygun

Thanks for that. I think I understand the situation better now. I was
under the impression that the maximum tax deductable borrowing when I
moved out of my first home was the size of the existing mortgage,
rather than the value of the property when I moved out.

I'm not absolutely clear what would have happened if I had "increased"
the mortgage to maximum because for five years or so I'd then have
been making a loss because the interest payments I'd have been
claiming would have exceeded the rent. I can't tell if that would have
meant my capital account would have gone overdrawn and whether that
overdrawn amount would still have been tax deductable.
In principle, I think it depends on the timing. If you "max out"
the capital account before the losses are incurred, the loan interest
should be allowable in full even though the losses subsequently make
the CA overdrawn. I don't know to what extent there is a "sanity clause"
in the rules which kicks in when it could have plainly been anticipated
at the time of maxing out the CA that the business would inevitably
start becoming loss-making.
Although I don't really understand the logic behind having interest
only mortgage so you pay less tax. Obviously it makes sense to pay off
non tax-deductable borrowings first but, IME, you pay more tax but
make more profit if you pay off the BTL mortgage.
Quite so.
Perhaps the
assumption is that everybody with a BTL mortgage will have a normal
mortgage on their main home as well?
Perhaps indeed, but you need to do your sums. As you say it makes
sense to pay off non-allowable borrowings first, but it also makes
sense to pay off higher-interest borrowings first, and BTL mortgages
tend to have higher interest rates than ordinary domestic ones, and
it's not always the case that the domestic one will be more expensive
than the BTL one once allowance has been made for tax relief.

Also don't forget that some of the "domestic" borrowing may in fact
have been used to fund the BTL venture, so also qualifies for tax
relief.
But I would have thought that the
people who can afford to invest in BTL are the same people who can
afford to make serious inroads into paying off their mortgage early
and so there are likely to be lots of people where 100% of their
borrowing is tax deductable.
Perhaps not as many as you think. Many people "can afford to invest
in BTL" only because they've borrowed the BTL deposit by maxing out
their domestic mortgage.
ISTM that many people want to minimize
tax rather than maximize profit.
Indeed. Many people do indeed cut off their noses to spite their face
in this way. They don't mind losing £6 so long as the taxman loses £4.
Or worse, £8 and £2.
 
J

John Boyle

In message <1188897558.471369.242950@57g2000hsv.googlegroups.com>,
(e-mail address removed) writes

I'm not absolutely clear what would have happened if I had "increased"
the mortgage to maximum because for five years or so I'd then have
been making a loss because the interest payments I'd have been
claiming would have exceeded the rent. I can't tell if that would have
meant my capital account would have gone overdrawn
It will tend to make go in the direction of being overdrawn, but whether
it does or not will depend on the exact circumstances and the amount you
have already drawn out.
and whether that
overdrawn amount would still have been tax deductable.
No, any interest on borrowing caused by withdrawals which, in turn,
cause the capital account to go overdrawn is not tax allowable.
(This is somewhat academic now as the mortgage has been completely
paid off)


Although I don't really understand the logic behind having interest
only mortgage so you pay less tax. Obviously it makes sense to pay off
non tax-deductable borrowings first but, IME, you pay more tax but
make more profit if you pay off the BTL mortgage.
That depends on the figures. In the early days for BTL is was definitely
better to borrow as much as possible, now with capital values so high
then it doesnt make so much sense.
Perhaps the
assumption is that everybody with a BTL mortgage will have a normal
mortgage on their main home as well?
Thats not relevant.
But I would have thought that the
people who can afford to invest in BTL are the same people who can
afford to make serious inroads into paying off their mortgage early
Not necessarily. My view is that a BTL should stand on its own without
much input from the borrower.
and so there are likely to be lots of people where 100% of their
borrowing is tax deductable.
Yes. Many people have 100% borrowing on the BTLs but that doesnt mean
they can make big inroads into their mortgage.
 
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R

Ronald Raygun

John said:
No, any interest on borrowing caused by withdrawals which, in turn,
cause the capital account to go overdrawn is not tax allowable.
Not ever? What if the capital account subsequently reverts to
being not overdrawn, be it a result of profit or of capital
being re-introduced?
 
J

John Boyle

Ronald said:
Not ever?
No.
What if the capital account subsequently reverts to
being not overdrawn, be it a result of profit or of capital
being re-introduced?
That shouldnt be a problem.
 
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google

In message <_sxDi.8804$c_1.2...@text.news.blueyonder.co.uk>, Ronald





No.
So, what you are saying, as a hypothetical example.

Someone has a home value 100k with a mortgage of 50k and a rate of 5%

If they then start letting that house on day 1 and then on day 2
withdraw another 50k by increasing the mortgage to 100k then the
interest on the second 50k (and interest on that interest etc) will
not be allowed to be offset against tax if it takes their capital
account (more?) overdrawn.

Assuming they make no profit after all expenses except interest in
year 1 they will have:

2500 interest that is allowable making their capital account -2500 and
a carried forward loss to the next year of 2500

2500 interest that is not "allowable" (and will basically have to be
repaid to the bank out of taxed income)

But if they increased the mortgage to 100k and then let the house, all
of the interest would be allowed to be offset against tax.

so at the end of year 1 they would have a capital account of -5000
with a loss carried forward of 5000.



What then happens in each case if they pay 5000 out of taxed income
(there being no profits to pay it out of untaxed income)

In the first case, presumably in year 2 (assuming no profit again
because it's easier ;-) if we assume they pay the interest their
capital account will go to -2500 again with another 2500 of interest
to be paid out of taxed income.

But if, intead, they say that the 5000 was to repay some of the
capital withdrawal on day 2 they now have 45k of capital withdrawal
plus 55k of original mortgage and interest. Their capital account is
now not overdrawn.

At the end of year 2 they now have 2250 of non-allowable interest,
2750 of allowable interest, a capital account of -2750 and a loss
carried forward of 5250

Or is it even more complicated than that?

Tim.
 

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