Resi/BTL mortgage - can I deduct BTL mortgage interest costs?

doubleOrQuits

Hi,

Do any clever MSEs out there know if, on my Self-assessment, I can deduct mortgage interest costs from by BTL property, given the following -

A year ago, we paid off the BTL mortgage (charging us about 3.5pc/year) by taking out an 'additional mortgage account'' on our residential mortgage (charging us about 1.2pc/year). This was because the 20pc tax deductible of the 3.5pc mortgage costs (I pay only basic rate tax) was vastly outweighed by the reduction in mortgage costs.

However I'm wondering whether I can continue claim a deduction on the now reduced mortgage costs, even though it's under the residential mortgage (albeit as an 'additional account'). Would anyone know?

Thanks!

[Deleted User]

In short - Yes. The fact that it is an additional account helps.

doubleOrQuits

I just spoke to someone on the HMRC phone helpline, who, after consultation with managers, said that it would not be possible to offset this interest against rental income, as the mortgage is secured against our residential property... d'oh.

purdyoaten2 / anyone else - do you think there are circumstances where it is possible?

please do let me know if so, could help me pay me for the repair work we've not yet done...

thanks

Pennywise

doubleOrQuits wrote: »

I just spoke to someone on the HMRC phone helpline, who, after consultation with managers, said that it would not be possible to offset this interest against rental income, as the mortgage is secured against our residential property... d'oh.

purdyoaten2 / anyone else - do you think there are circumstances where it is possible?

please do let me know if so, could help me pay me for the repair work we've not yet done...

thanks

HMRC are wrong - there is no requirement for the loan to be secured on the premises being let.

00ec25

when you speak to an HMRC call centre you get a call centre person with a sketchy knowledge of some basic tax. When they consult a "manager" that person may have more in depth knowledge, but no one can be an expert on everything and the manager's skill should therefore be in knowing how to look things up. It seems you got one who could not be bothered to do so ...

what a loan is secured on is not the determinant
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45685

what the borrowed funds are used for is the determinant
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45690

your BTL had borrowings which were used to fund the BTL. Those borrowings continue to fund the BTL, but have now been transferred to a private residence. The principle is to establish that the borrowings are all related to the BTL, and therefore its capital account is not overdrawn. In which case all of the interest is allowable against the rental business, and there is no need to restrict the interest. However, working out the capital account and documenting the calculation to support your tax return may be better left to a professional adviser with the required knowledge:

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45705

and finally.......
you have a separately identifiable loan
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45675


go see a decent tax accountant

doubleOrQuits

brilliant ... thank you - that's super helpful