Property Tax Experts' Lack of Consensus - Remortagaging BTL Portfolio and Tax Relief for Interest

[John S]

Please could someone confirm the correct tax treatment concerning the income tax relief available for the interest on remortgaging a BTL portfolio. Some experts say that the taxpayer is restricted on the interest relief available to the purchase price of the property whilst other equally reputable property tax experts clearly illustrate that interest relief for BTL remortgaged properties can exceed the purchase price once the property appreciates in value and the remortgaged loan far exceeds the original purchase price. Before I have an accident with this in terms of my own portfolio can it be cleared up once and for all !!!

[James Smith]

John,

A thorny issue, there is general disagreement on this one across advisors not helped by the inspectors manual which appears to contradict some accounants reading of the legislation. Compliance is also patchy on this, with some inspectorÂ’s taking different views.

The "safe" position

You can only offset mortgage interest (which can be secured anywhere) against the initial cost of the property when it was purchased even if at this time it was not used for letting. And thatÂ’s it apart from capital improvements.

The "inspector manual or trading company view"

You can offset mortgage interest up to the value of the property when it was brought into the business of letting residential property. (ie you can remorg for the deposit and capital appreciation pre letting as this is a withdrawal of owners capital from the lettings business)

The certainly "wrong view"

You can offset any amount of borrowing so long as its against the property being let.

My adventurous clients do the middle one, the cautious ones the first one. No-one does the last one. I know thatÂ’s not the answer you wanted, but sometimes there arenÂ’t easy answers to these questions. Given you have a portfolio I assume you already take professional advice, and if so, after you ensure their indemnity insurance is big enough, do what you advisor suggests. If they are proven wrong its claim time.

Regards,

James Smith
Chartered Accountant
www.jamesesmith.co.uk
01284 764436