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Old 05.04.2007, 14:11
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Re: Can anyone help with a UK tax question?

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I was looking at renting my house out, there is a tax loophole here that can be exploited;

1) Rent it out for LESS than your monthly mortgage amount (by not much, say 10 a month)
2) Because you are making a loss overall, you do not get taxed as there is no profit to be taxed on
3) End of the year, remortgage the property to release equity - there's a level beneath which the govt do not tax you for released equity from the property, from memory I think this wass 10k when I looked into it
4) Contact your tenants and advise them that due to interest rate changes etc there's an increase to the monthly rent of "x", where "x" is enough to make sure that a) it's still less than the mortgage, and b) it's enough to cover the increased cost per month from the remortgaging.

This way, you cost yourself 120 a year in being "under" your mortgage amount, but get back 10k a year tax free. The only thing to be sure of is that you have the house full all the time, but thats the same with renting it anyway.

You do still have to declare all of the above to Inland Revenue, but because you're effectively trading at a loss and just remortgaging, it's all totally legal and above board, and they can't touch you for it. My friends uncle gave me this advice, he's been doing it about 30 years no problem.
If you keep jacking the rent up year on year it's a sure way to lose tennants so bear that in mind.

AFAIK in *Switzerland* you get taxed on the rental income of the house (regardless of whether or not you're actually renting it out). You can get a rebate on _interest_ payments that you have to make to service the mortgage debt but not on that portion of the payment which goes to reduce the capital amount borrowed.

So if you are resident in Switzerland/due to pay Swiss tax, this strategy isn't going to benefit you as much as you think. Unless of course you have an interest-only mortgage. Bear in mind that you have to declare the UK property to the Swiss tax authorities if you are being taxed in CH. I don't know if they have a reliable way to otherwise find out you have a property however, if you don't declare it. I wouldn't want to risk it though.

As for remortgaging the house to cash in on the increased value, not too sure how the Swiss tax people look at that. In the UK I think you should be able to borrow ANY amount of money against your house without being taxed on it. It's not income, it's a loan (which has to be repaid in full with interest some day) and hence therefore not taxable.
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