Offset rental income of one property against mortgage interest on another

[Ketchup]

AFAIRR - and I'ld have to research to check - properties which are not let commercially can't be pooled.

In other words costs on the flat "rented" to g/f for £0 will be streamed separately.

Also, tax relief runs on use of funds not their security. Eg if you mortgage property A to buy property B, tax relief is against B even though the mortgage is on A. Don't know if that effects you, TLDR.

Having a quick google turned up this: link

They claim to be a chartered accountant and say:

With UK Property income, all income (rental) is assessed on an accruals basis for each year. If you have multiple properties, the way that HMRC treat all of this property income is that they pool this all together and classify it as a ‘single business’.

[Moscow Mule]

Having a quick google turned up this: link

They claim to be a chartered accountant and say:

I would check the wording of this year's finance bill - I believe this is going away.

[northernladuk]

Bit lost in what is being offset against what but it appears if you are letting for below market rent you can only claim relief up to the amount of rent...... or none at all as letting to family fails wholly and exclusively rule it seems...

Deductions: specific items: properties not let at a commercial rent

nless the landlord charges a full market rent for a property (and imposes normal market lease conditions) it is unlikely that the expenses of the property are incurred wholly and exclusively for business purposes ( PIM2010). So, strictly, they can’t be deducted in arriving at rental business profits. However, if the taxpayer lets a property below the market rate to, say, a relative (as opposed to providing it rent-free), they can deduct the expenses of that property up to the rent they get from it. This means that the uncommercially let property produces neither a profit nor a loss, but the excess expenses cannot be carried forward to be used in a later year.

and I think the humdinger here is at the bottom...

Statute
In order to compute the profits of a rental business, all the rents and expenses of that business are pooled together. However, by applying trading income principles we ensure that an uncommercially let property is not subsidised for tax purposes by others.

To be allowable, expenses must be wholly and exclusively for the purposes of the rental business - ICTA88/S74 (1) (a) and ITTOIA05/S272. In particular relief for the maintenance of the taxpayer’s family or establishment is excluded.

If a property is occupied rent free, it is completely outside the property income regime - there is no exploitation of it as a source of rents or other receipts - ICTA88/S15 (1) 1 (2) and ITTOIA05/S266 (1).
If a property is let at less than the full commercial rent, any expenditure relating to that property will normally have been incurred partly for a benevolent or philanthropic purpose and will consequently fail the ‘wholly and exclusively’ test in ICTA88/S74 (1)(a) and ITTOIA05/S272. Although, in strictness, no expenditure on such properties is admissible as an expense of the rental business, expenses can be deducted up to the amount of rent derived from that property.

which means I might have just proved my previous post wrong.

[Jessica@WhiteFieldTax]

Having a quick google turned up this: link

They claim to be a chartered accountant and say:

Yes, but that quote is condensing several pages of tax legislation into a sound bite. Devil is in the detail.

NLUK is on the right track with his extract from HMRC

[Jessica@WhiteFieldTax]

I would check the wording of this year's finance bill - I believe this is going away.

Don't recall anything significant or life changing on property letting? Nothing coming to us on our usual "act now for your clients benefit" sources.

[eek]

I think there is a way out of this but it ain't simple.

Can you afford to buy in Enfield Chase without a mortgage?

You can then mortgage Enfield Chase to create the deposit on the council flat and offset both that mortgage and the mortgage on the council flat against the council flat.

You won't however be able to offset anything against the Enfield Chase house due to the issue NLUK highlights.

[Ketchup]

Thank you for all the advise, It really has made me think very hard about this, especially the scenario NLUK raised about if we fall out, she could try and force a sale, or worse still move her kids and herself into the jointly owned flat and a court would be reluctant to evict them until the children were 18.