Interest deduction on BTL

Pigmy

When you purchased the BTL there was obviously a movement of money from somewhere. Can you link that back to your residential mortgage (in my case I drew the money from my res mortgage to fund my BTL)? If your res mortgage has never changed, you might be on a sticky wicket! You might be able to do something after the event - I'm guessing this bit - say had £100k of savings and a £150k res mortgage and you were buying a £80k house (making up the numbers of course!) and you paid for it from your savings. After the event, if you extended your res mortgage to £230k and replenished your savings then you could show the audit trail and hence offset a segment of your res mortgage. Over time, you could then pay off the residential section of your res mortgage which brings you back to £20k savings, £150k mortgage (£80k btl, £70k res) and a BTL property. Hope this makes sense.

Gwhiz

Simple really.

1) You have mortgage on main home. You buy BTL for cash. You want to deduct main home mortgage from BTL. NO YOU CAN'T

2) You re-mortgage main home in order to use cash to buy BTL. This can be deducted.

mlz1413

If you write to your local HMRC with your query, that way your will get a written response to your question (or situation) so giving you a paper back up for any action you take.

silvercar

Gwhiz wrote: »

Simple really.

1) You have mortgage on main home. You buy BTL for cash. You want to deduct main home mortgage from BTL. NO YOU CAN'T

2) You re-mortgage main home in order to use cash to buy BTL. This can be deducted.

It really isn't that simple. There is no automatic "no" to (1). If you had the cash on a residential offset mortgage and then withdrew it to purchase the BTL, the extra interest occured directly as an expense of the new BTL business.

To take it one step further, if the savings were in a separate account and you decided to replenish them by increasing your BTL mortgage, the situation is little different from the savings being in a linked offset mortgage account, so seem reasonable to me. You increased the mortgage to put yourself in the same situation as previously but now you have a BTL property and the funds for it came about by increasing the residential mortgage.

The Inland Revenue are well aware that the cheapest borrowing is by a residential mortgage and there has never been a requirement that the loan should be secured on the property in question. Indeed those with large portfolios don't have separate mortgages secured on each property. There is no requirement to have the loan secured anywhere.

mr_shinobi`

Silvercar

Do you have a link to HMRC to verify that loans do not need to be secured against the property against which interest deduction is claimed?

Thanks

poppysarah

mlz1413's advice is probably best. Plus speak to an accountant. They can save you lots of money too.

noh

mr_shinobi` wrote: »

Silvercar

Do you have a link to HMRC to verify that loans do not need to be secured against the property against which interest deduction is claimed?

Thanks

Unlikely to be such a statement.

If you read the helpsheet for SA105 for property expenses it says to include.

"Loan interest and other financial costs

Include:
• the costs of obtaining a loan or an alternative finance arrangement to buy a property that you let

• any interest on such a loan or alternative finance payments."

Note the use of alternative financial arrangement/payments.

silvercar

mr_shinobi` wrote: »

Silvercar

Do you have a link to HMRC to verify that loans do not need to be secured against the property against which interest deduction is claimed?

Thanks

Its like searching for a negative. Apart from the post above I doubt there is anything written. it is more the fact that there is nothing that states that the loan has to be secured on the property that is let. (Actually there is nothing to say the loan has to be secured full stop.)

The HMRC own website used to give examples that applied, but then they shuffled things around and now I can never find anything quickly.

Also worth looking at taxationweb forum.