Domestic remortgage to fund a B2L

[b0redom]

Before everyone starts going nuts and saying this is a bad idea, I want to do this to offset an existing B2L income.

I am currently about to remortgage my domestic property as I've come to the end of my fixed period. I am considering borrowing extra funds to fund the deposit on a B2L. I've been advised that as long as I put something in the mortgage application regarding £x0000 as a mortgage and £x000 as a deposit on a buy to let, I'm covered initially.

My question is:

If I put a big chunk of equity back into my mortgage at a later date, do I need to specify which part is being paid off? ie My domestic mortgage or the part of the mortgage earmarked for the b2l deposit.

My accountant doesn't know, but has suggested that in order to remain squeeky clean I could probably arrange a remortgage and then organise further borrowing specifically earmarked for the b2l deposit, but even then she's not sure how to arrange repayments pay off the domestic part rather than the 'loan'.

I can't remortgage/borrow extra funds against the existing B2L I have as it's with one of the government owned building soceities at a VERY low rate of interest generating a healthy income. I simply want to offset the income against borrowing on another property.

[insur]

So long as the numbers add up on paper this is a very good way to fund a deposit for a B2L purchase.

Do you have to mention the reason for the additional borrowing during the remortgage process? Other than to have a clear conscience?

If the extra borrowing is covered by the value of your home, the bank should not care what the additional funds are used for.

If you tell them about the B2L purchase, when they could be lending you that money on a higher B2L rate, they are likely to say no.

I assume the interest rate at which the total money is borrowed is the same, therefore any large repayments will simply come off the total sum and you will not have mention which portion (loan or original mortgage) the amount will be reduced from.

I did the same a few years back and from experience I would avoid mention of a B2L if at all possible.

[b0redom]

I've been advised that it needs to be clear that the additional borrowing is to fund the B2L deposit if I want to offset it against rental income. Whether that needs to be presented to the bank is another matter.

[ChimpMaster]

If you remortgage (or get additional loan funds on) your domestic home, the loan is against that property, not against your BTL. It will therefore NOT be tax-deductible.

The BTL needs to have a mortgage of its own, so that you can deduct the interest element from tax payable on rental profit.

A loan against your own home is not a 'business' expense for your BTLs.

[Maslins]

I'd recommend you got it as a separate loan...then surely you just choose the repayment periods to suit you. Ie if you want to leave the bit earmarked for BTL longer, take that out over a longer period than the "normal" mortgage.

If it's two separate loans, getting the split of interest should be easy. Also, hopefully it'll make it nice and easy to demonstrate £X withdrawn towards BTL at broadly the same time as that same £X is put down as a deposit on the BTL (in case HMRC question the purpose).

[ASB]

If you remortgage (or get additional loan funds on) your domestic home, the loan is against that property, not against your BTL. It will therefore NOT be tax-deductible.

The BTL needs to have a mortgage of its own, so that you can deduct the interest element from tax payable on rental profit.

A loan against your own home is not a 'business' expense for your BTLs.

Yes it is.

BIM45685 - Specific deductions - interest: Security for the funds
BIM45695 - Specific deductions - interest: General business accounts, mixed use accounts and offset accounts

THe important thing is being able to show you have introduced capital for the B2L business. It doesn't matter how you personally raised that capital.

[insur]

I've been advised that it needs to be clear that the additional borrowing is to fund the B2L deposit if I want to offset it against rental income. Whether that needs to be presented to the bank is another matter.

Good luck with trying to convince HMRC that a portion of your home mortgage should be offset on your BTL tax bill.

[b0redom]

OK let me clear up a few bits:

I am intending on taking a B2L mortgage out on the B2L property.
I am intending on taking further funds from my domestic mortgage to pay for the deposit.

I understand that I can offset the interest from the further funds I take from my domestic property (ie the costs) AND the interest from the B2L mortgage against the income from the B2L.

[ASB]

OK let me clear up a few bits:

I am intending on taking a B2L mortgage out on the B2L property.
I am intending on taking further funds from my domestic mortgage to pay for the deposit.

I understand that I can offset the interest from the further funds I take from my domestic property (ie the costs) AND the interest from the B2L mortgage against the income from the B2L.

Correct. The point is that the loan which happens to be secured on your main main residence is allowable because the purpose of the loan is to (part) purchase the property forming part of the rental business.

Personally I would raise as much against the residential property as possible as that is likely to be at a better rate than that secured on the btl but ymmv.

You can show that the substance of the transaction was to raise new capital of "x" and use it to part pay the new property. The interest is then chargeable. However you will need to be able to show this.

Certainly you couldn't unilaterally decide that (say 40k) of the existing mortgage was to part fund the new property.

Start here:-

Funding the Buy-to-Let

BIM45650 - Specific deductions - interest: Contents
BIM45690 - Specific deductions - interest: Funding the business