I went to see a new client late last week and she told me how upset she was that she could not afford to pay her tax bill on her rental income. Now I am seeing a lot of landlords with tax bills of over 100% so this is not the first time I have heard this from a landlord.
I also meet a lot of landlords that have tax bills that are far smaller than they think because they are not claiming all of their legitimate expenses. I’ve never had one quite like this before though.
This lady has three properties. Two are let and one is her home. She has a £600k mortgage on her home that is costing her about £2,500 a month in interest. Her home used to be mortgage free until she remortgaged it to buy the two rentals. Her rent coming in after management charges is slightly under £2,500 a month.
Admittedly she is not in a fantastic place with these rentals. She is working to sell one of them because it’s really not a good rental but that’s a different story. She had been told that she could not claim the interest she is paying and even if she could there is not tax relief on mortgage interest anyway. Wrong and Wrong!
The mortgage was taken out specifically to buy rentals. It’s as pure a claim as you can get no matter what it is secured on.
Also you CAN claim tax relief on mortgage interest. It is restricted to basic rate but you can claim.
The lady in this story has maybe £15k max in pension income so even after adding £30,000 of rent she is a basic rate taxpayer. Offsetting the mortgage interest means that she will have no tax bill at all. She had been told she would be facing a £6,000 or so bill.
The relief on the face of this lady when I told her the news is the very reason I do this job.