Mortgage interest allowable expense?

Ed-1

If you buy a property to rent out with a mortgage on your main residence, and later sell the buy to let but keep the mortgage, can you continue to deduct mortgage interest from rental from your other buy to lets?

silvercar

The other buy to let's need to be in the same reporting group on your tax return, so residential properties in the UK would be fine.

Basically the loan amount is funding your business of letting properties, if you weren't letting any properties, the mortgage wouldn't be a business expense. Where the money is secured isn't important. What counts is the purpose and by the sound of it you took it to fund your letting business.

The restrictions on the size of the loan allowable being the total value of the properties when first let and the newish restrictions on higher rate tax relief being phased out still apply.

Ed-1

silvercar wrote: »

The other buy to let's need to be in the same reporting group on your tax return, so residential properties in the UK would be fine.

Basically the loan amount is funding your business of letting properties, if you weren't letting any properties, the mortgage wouldn't be a business expense. Where the money is secured isn't important. What counts is the purpose and by the sound of it you took it to fund your letting business.

The restrictions on the size of the loan allowable being the total value of the properties when first let and the newish restrictions on higher rate tax relief being phased out still apply.

So does it matter that the loan that was originally taken out to finance the purchase of a buy to let is now bigger that the value of the properties still being let?

So e.g. live in main residence (property A), buy a buy to let (property in cash (£36,000), take out a mortgage (£100,000) on property A to buy another buy to let (property C). Rent out properties B and C. Later sell property C. Can the mortgage interest still be deducted from rental received from property B?

silvercar

Ed-1 wrote: »

So does it matter that the loan that was originally taken out to finance the purchase of a buy to let is now bigger that the value of the properties still being let?

So e.g. live in main residence (property A), buy a buy to let (property in cash (£36,000), take out a mortgage (£100,000) on property A to buy another buy to let (property C). Rent out properties B and C. Later sell property C. Can the mortgage interest still be deducted from rental recieved from property B?

I would have thought so, but the restriction would be on the value of property B when first let. So in your case the interest you pay to the lender on 36k of the 100k would be allowable.

It's a business, if you didn't have the business and hadn't bought property B you could now have a smaller mortgage.

Also remember the recent changes mean that interest, on just 36k, is restricted to basic tax relief only.

Ed-1

silvercar wrote: »

I would have thought so, but the restriction would be on the value of property B when first let. So in your case the interest you pay to the lender on 36k of the 100k would be allowable.

It's a business, if you didn't have the business and hadn't bought property B you could now have a smaller mortgage.

Also remember the recent changes mean that interest, on just 36k, is restricted to basic tax relief only.

So is mortgage interest not "linked" to a particular buy to let property like other expenses can be? For instance, if you are no longer renting a property commercially you can't deduct repair costs on that property. Does a mortgage taken out to fund that property cover the rental business as a whole rather than an expense relating specifically to that property?

silvercar

Ed-1 wrote: »

So is mortgage interest not "linked" to a particular buy to let property like other expenses can be? For instance, if you are no longer renting a property commercially you can't deduct repair costs on that property. Does a mortgage taken out to fund that property cover the rental business as a whole rather than an expense relating specifically to that property?

It's borrowing for your rental business. No obligation for the loan to be secured on the property concerned, or even for it to be secured at all. Plenty of people fund the deposit by unsecured loans. for really cheap properties, the entire lending could be through a credit card or overdraft.

Ed-1

silvercar wrote: »

It's borrowing for your rental business. No obligation for the loan to be secured on the property concerned, or even for it to be secured at all. Plenty of people fund the deposit by unsecured loans. for really cheap properties, the entire lending could be through a credit card or overdraft.

But if you no longer rent the property that the loan was used to buy, how can the loan still be funding the rental business?

00ec25

Ed-1 wrote: »

But if you no longer rent the property that the loan was used to buy, how can the loan still be funding the rental business?

it isn't, however, you are allowed to withdraw capital from the business provided the capital account does not become overdrawn as a result.

see the following:
example 1: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45680

security: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45685

the capital account: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

example 2 withdrawing capital: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

i grant none cover your specific scenario, but the key principle is whether the capital account is overdrawn or not after the property has been sold since the sale would ordinarily result in capital being repaid into the business.