Buy to let

blueskyethinking

Hi, if I mortgage my own house to refurbish a rental property, would the interest be tax deductable?

dimbo61

You need to speak to an accountant ? Who deals in rental properties.
I know that repair and replace are allowed ie replace an existing kitchen but not build an extension.
Changing wooden windows with UPVC is also OK. Not counted as betterment !
Improves security, fire safety and insulation rating.

Dave_the_Ginger_Cat

AFAIK the interest payable for purchase only is deductible, no refurb. You may be able to offset the capital costs depending on the method you've chosen to deal with this - the 10% or actual cost basis. As the previous poster comments, betterment is not included but repairs and maintaining standards are. I've put central heating in under this, as it was cheaper and more efficient than maintaining the existing gas fires

As this could make a material difference, recommend a tax accountant

holly_hobby

Yes, you can release equity from your own home (either by a further advance or remortgage), and use this capital to fund your BTL repairs, improvements or alterations, whilst deducting the associated interest from your rental income. This is because for HMRC purposes, the loan is classed as capital injection with the interest therefore a permitted deduction.

However, take note - only interest on capital directly invested/utilised into the business is a permitted deduction.

To that end, please ensure you have a clear audit trail between the 2 (ie equity release and business injection), especially where only part of the new loan is for business purposes .... you must be crystal clear on the figs and you must not deduct any interest that is NOT a permitted deduction (as noted above).

Easy to remember ....

Improvement costs are a CGT deduction on disposal

Repair/maintenance costs are an Income Tax deduction.

Any interest in respect of a loan used to fund either of the above, is an income tax deduction.

As always, please ensure you top and tail any comment with you own tax practitioner, or HMRC directly.

Hope this helps

Holly

bigadaj

Holly are you sure on the allowable interest on the refurb. Everything else I totally agree with, but I'm not sure the interest on A loan/ Mortgage to improve the property would be allowable because, as you say, improvements are capital improvements and I don't think these would be allowable for tax relief as they aren't a necessary expense of the business.

holly_hobby

bigadaj wrote: »

Holly are you sure on the allowable interest on the refurb. Everything else I totally agree with, but I'm not sure the interest on A loan/ Mortgage to improve the property would be allowable because, as you say, improvements are capital improvements and I don't think these would be allowable for tax relief as they aren't a necessary expense of the business.

Fairly much ....

The interest on any associated loan for repairs, maintenance, improvement is a permitted income tax deduction ... whilst the capital expenditure of improvement costs (ie not maintenance/repair) are a CGT deduction.

Have dug this out just to top and tail .... refer 2nd paragraph, 2nd line of text ....

http://www.hmrc.gov.uk/manuals/pimmanual/pim2105.htm

Hope this helps

Holly