95% Lend on Property?

[travina]

So in HK you can write off any interest you paid during the year if you use that money to invest in property? Can you do this if you invest in general and not just property?

Also, I think in HK when you rent out a flat or something don't you need to go through a realtor agent? So there is no way of avoiding the government unless you do it privately to a friend or referral. So in that case you don't have to worry about the letter as they can easily just tell you there is a letter for you from the bank.

If you use personal's name to purchase a property and then rent it out, if you have more than one source of income, e.g. salary income + rental income. When you file tax return to tax department, you can elect personal assessment. Under this situation, mortage loan interest can be claimed as deductiable expenses (amount will not exceed rental income), also you can claimed 20% of rental income as statutory allowance. Therefore, the net taxable income will be reduced. Taxable income = (rental income - statutory allowance(20% X rental income)- mortagage loan interest ) + other income (e.g. salary ) less allowance, taxable income X rate = tax you need to pay. Interest expenses paid for other investment is not deductible in Personal Assessment.
In Hong Kong, is it not necessary to rent out a flat by go throught agent, you can prepare tenancy agreement yourself and sign with tenant, just to ensure your tenant will pay rent to you timely and keep your flat in good condition. Usually, tenant will not ask you to provide letter from bank regarding premission of leasing property. No one will care your premission, but if your bank find out you lease out the property, they may revise the mortage loan term and charge you higher interest rate. Once thing, in case you have rental income, you must informed the tax department by filing property tax return, and individual tax return, and declare you have rental income. Tax department will not ask you to provide bank letter regarding premission of leasing flat. If you do not report rental income to tax department, that means you are not compile to tax ordinance, you may have problems in future.

For me I think it is very simple, just to purchase a property, and inform bank it is used for leasing purpose, ask them to offer you mortgage loan interest rate = HIBOR + 05 or 4.85% whichever is lower will be used. Also, when you receive rental income, report to tax department. This is what I am doing the similar thing.
The different is, in order to save tax, I use a limited company to hold all properties.

If you have any queries, love to share experience with you.

[aussiebiscuit]

hey travina,

thanks for the detailed response. the only problem i have is that if i quote it as a rental property according to my mortgage broker i can't get a 95% lend. only 70% lend. does this fall in line with your research as well?

cheers,

tim

[travina]

Hi Tim,

Sorry, I do not have experienced to get 95% of mortgage loan, I only get 70%, I am not dare to give you advice on this area. I guest mortgage loan and report rental income to tax is 2 different issues. You will not have problems to report rental income to tax dept. as tax department will not share your personal information with your banker and insurance company, to report rental income tax department, at lease you have compiled with Hong Kong tax ordiance. 2nd issue is your mortgage loan issue, I can call my banker by tomorrow, and seek their advice for your interesting issues. If I have any news, I will let you.

[travina]

Tim, I called our banker and they advised me that for 95% of mortgage loan, it must be used for own use for not leasing purpose. In case the banker find out the property is used for leasing purpose, they have right to call loan, that means ask mortgagee to repay full amount. You have to be careful for this point.