Buy to let tax relief on mortgage interest

HazardsOn

Hi
I am considering taking out a mortgage on my home and using it to buy a property to rent out.
The question is which of the following pieces of advice is correct regarding the tax relief on mortgage interest?

1. "while it is commonly known that landlords can offset interest from a buy-to-let mortgage against their tax bill for income from rent, it is lesser known that you can also do this with interest on other sources of borrowing, such as a residential mortgage on your own home." (source is from this is money - link available on request as I'm not allowed to post with links)

2. "The interest you pay on the mortgage on your home is not a business expense and so cannot be deducted from the rent you receive when working out your income tax liability. You could deduct the interest if you had a mortgage on the property you are renting out." (source is from the Guardian - link available on request as I'm not allowed to post with links)

Discuss! Personally I am going to take advice from HMRC and see where that gets me. I'll post the result.

G_M

1) above is correct.

2) starts with an assumption: "The interest you pay on the mortgage on your home is not a business expense ". This assumes the mortgage was used to buy your home.

If, however, the loan on your home is used to fund the let property, then it IS a business expense.

00ec25

as GM says 1 is correct
the property rental business is borrowing the money to fund its own start up (buy the rental property) so the cost of the debt (the interest payable) clearly lies with the rental business. It is utterly irrelevant that the loan is secured on a residential property

see para 2: "For IT, interest payable on loans used to buy land or property which is used in the rental business, or on loans to fund repairs, improvements or alterations, is deductible in computing the profits or losses of the rental business in the same way as other expenses"
http://www.hmrc.gov.uk/manuals/pimmanual/pim2105.htm