Situation - Loans on P&I - Net rental income cover all interest but only a small amount of principle. - Offset1 - personal savings - Offset2 - contains equity release Offset2 used only for investment purposes to make sure interest is tax deductible. So there is no mixing with personal savings. Actually for my question (below), you can ignore offset 1 entirely. The question is - can you have your rental income deposited into offset 2 (where your equity release is) and then have your loan repayments taken out of offset 2 thereby having the interest paid from the rental income and the principle paid by your equity release? Or is there some problem mixing your equity release with rental income? Both are investment related (income from investment and expenses for investment). The part I am unsure of is - the repayments are a mix of principle and interest. The net rental income covers the interest, but the interest and principle part of the repayment is not separate, and also the equity extracted and the rental income are not separate. Is there a problem with this setup?
sounds like some borrowing to pay principal would result. I have a tax tip on this called 'want to pay IO on a PI loan?'
Yes I am trying to find how to put that idea into practice. • Any problem with mixing extracted equity with rental income (both used exclusively for investment)? • Any problem with loan repayments (which by definition is mixed interest and principle) coming from mixed extracted equity & rental income?
Hi Terry, You said that it's not problem mixing extracted equity with rental income (both used exclusively for investment), but I just I noticed on your webiste, you said that Even depositing rent in an offset containing nothing but borrowed money will contaminate the loan. If the offset contains the borrowed money only you can trace it back to the borrowings so the interest will PROBABLY be deductible (see tax tip 1). But as soon as you mix non-borrowed money in an offset containing only borrowed money it will be contaminated and AT BEST you will have to apportion the interest. Doesn’t matter what the source of the money is. Just wondering if you could explain you thoughts on this? If both equity released and rental income deposited (and mixed) are exclusively for investment, and and the funds used exclusively for investment, does this avoid the problem you mentioned on your website?
It is a problem usually, but if your situation the rent is basically being used to pay the interest. you are not withdrawing it. Seek specific tax advice.
