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Q & A: Offsetting a buy-to-let mortgage
I have a buy-to-let property with a repayment mortgage, which is offset against a savings account. I am well aware of the ability to offset only the interest portion of the mortgage against income from rental. However, in circumstances where I have an offset mortgage, my mortgage statements show the gross amount of interest charged and then credit me a sum in respect of the offset.
So, for example, a typical mortgage statement will say that I would have paid £500 in interest without the offset, but because of my offset, I have in fact only paid £300. Can I offset the gross amount of interest against my taxable income?
Also, where the interest outweighs the rental income, can I offset the extra portion against any other income I get from my day job?
RK/London
Expert's response
Ray Boulger, Award-winning independent mortgage expert from broker John Charcol
You can't claim tax relief on tax that you haven't paid, so you only have the net amount after offsetting to work with. Buy-to-let mortgages are normally kept interest-only to keep the debt high enough to match the rental income. It sounds like you have a large lump sum of savings that is effectively wasted by offsetting a buy-to-let. You have gained tax efficiency in offsetting, but lost it by reducing your relief on an investment property. If your tax adviser confirms that this is the case I recommend that you look into making your own main residence an offset instead.
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