Allowable interest to offset rental income

[vicars]

Hi, here is the scenario: I own a property with no mortgage that I live in. I bought it origonally for �50,000 and had a �40,000 mortgage. I now want to buy another property (for �100k) to move into and let my own property (now worth �100k as well). If I raise money on my current property to fund the deposit and take a new mortgage on the one I move into, can I offset any interest against the rental income from the property I am going to let (my former property with no mortgage currently)? Or maybe I should raise as much as I can on the first property? My brain remembers something about raising back the amount of the original mortgage and being able to offset this but am in in a situation where I am just raising money to buy the next residential property and so will not be able to offset anything?
Looking forward to all you property whizzes and accountants getting back.

[EverClean]

You can offset the interest element of a mortgage payment against the rent received from the same property. There are other allowances for letting agent fees, maintenance, etc.

It is therefore best to raise as much as you can against the let property to offset as much interest against the income you derive from it.

Plus the borrowing will be against a property that is not your residence - an added layer of security if you experience difficulties as any action from a lender will not be against your residence.

[vicars]

Hi EverClean, my understanding on raising income is that if I raise money on the let property to buy the property I want to move into I can not offset this as it is not for investment. It is a tricky one but I am sure there must be a way to justify the raised money, or part of it - it is just that I need a clear justification for offsetting the raised money as it will probably be deemed not to have been raised for the purposes of buying an investment property - rather my new residential property. Would you agree? Thx.

[jedimistress]

I believe you have it right in your question. You can re-raise that �40,000 and claim the interest as an expense against your rental income. But any further borrowing than the �40,000 would not be claimable.

[vicars]

Thank you mistress, especially at 8am on a Saturday morning! MTFBWU.