Claim mortgage interest tax relief on BTL

doraexplorer326

Sorry if this is a stupid question but ...

I own a BTL originally worth £100k with a £80k BTL mortgage. I want to remortgage my main residence for £80k and pay off the BTL mortgage because the BTL interest rate is much higher than my residential mortgage rate. I currently claim tax relief on the interest of my BTL mortgage. Can I claim interest on that portion of my residential mortgage as the money is being used to fund my BTL?

Peter999_2

I do the same as you with a flat.

My accountant said that no, I couldn't claim tax relief on my mortgage even though I used it to pay off the flat mortgage.

somethingcorporate

Peter did you get a second opinion or advice from HMRC?

I am no expert but given some of the recent topics on here I think you should be able to given you are raising finance for the specific purpose of purchasing (or contributing to the capital of) the business asset.

Peter999_2

No, I didn't get a second opinion from HMRC which is why I mentioned my accountant said it. He could be wrong of course.

I don't pay any tax on the flat as I am a house husband so this is my only source of income at the moment so I didn't bother asking HMRC.

chrismac1

This one has come up several time before. There is a BIM somewhere on HMRC site which deals with it, it seems to have moved as I had a direct favourite to it but this is not working. Anyway the gist of this is that if the purpose of the loan is business - i.e. to fund the BTL - then the interest is a valid expense, regardless of which property the mortgage is against. I have a few clients who've remortgaged their home at the same time as they bought a BTL, we've documented this so it is clear there is a direct link between the remortgage and the business purpose.

If you were my client, I'd be saying that although the direct link between the mortgage and property has been broken, the commercial purpose of the mortgage remains intact so we claim the interest. We would discuss the risk of HMRC challenge and a small minority of clients prefer not to take such risks which is up to them. However, for the majority which are OK to take such risks, my close out letter would flag up the risk involved of a challenge from HMRC.

doraexplorer326

Thanks for the replies. I didn't realize how complicated it could be as various people seem to have differing opinions. I'll ring hmrc this week and see what they say but have little faith in getting a definitive answer based on previous experience. It certainly seems worth trying however.