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Interest relief on a mixed property?

Another John
Posts: 29
Joined: Wed Aug 06, 2008 3:16 pm

Interest relief on a mixed property?

Postby Another John » Wed Jan 11, 2017 10:46 am

I have looked on HMRC's website to try to find out how they define 'residential' for the purposes of applying their new restrictions to loan interest relief on property lettings.

This may seem like a stupid question except that I have just been looking at the website in relation to SDLT, whereupon HMRC class a mixed commercial & residential property as 'non-residential' and which, therefore, does not attract another of their new landlord-bashing measures, the 3% SDLT surcharge.

Could anyone help me on this one please?

maths
Posts: 6493
Joined: Wed Aug 06, 2008 3:25 pm

Re: Interest relief on a mixed property?

Postby maths » Wed Jan 11, 2017 7:46 pm

The new restrictions for the deduction of finance costs related to residential property are contained in ss272A and 272B of ITTOIA 2005 (inserted by FA (No 2) 2005 s24) More specifically, the provisions apply to "dwelling-related" loans defined as those in relation to a property business generating income from "land consisting of a dwelling house" (s272B(2)).

Another John
Posts: 29
Joined: Wed Aug 06, 2008 3:16 pm

Re: Interest relief on a mixed property?

Postby Another John » Wed Jan 11, 2017 8:58 pm

Thank you Maths - I will look them all up.

Another John
Posts: 29
Joined: Wed Aug 06, 2008 3:16 pm

Re: Interest relief on a mixed property?

Postby Another John » Wed Jan 11, 2017 10:00 pm

I'm a total layman in these matters, but I find it very strange that HMRC has overly defined residential property in this legislation, with its every-which-way dwelling-house stuff, compared with its stance for the purposes of SDLT, where it merely states 'residential' (presumably for dwelling-houses) or 'non-residential' (for mixed transactions) - so there's no additional 3% penalty when buying shops with flats.

Also, I've just watched a piece by Olivia Rudgard of The Telegraph called 'Buy-to-let stamp duty loophole: flats above shops' where she states "Mortgage interest relief changes won't apply to mixed-use property".

The following is copied from LEGISLATION.GOV.UK - Finance (No. 2) Act 2015

272B Meaning of “costs of a dwelling-related loan”

(1)Subsections (2) to (5) apply for the purposes of section 272A.

(2)“Dwelling-related loan”, in relation to a property business, means so much of an amount borrowed for purposes of the business as is referable (on a just and reasonable apportionment) to so much of the business as is carried on for the purpose of generating income from—

(a)land consisting of a dwelling-house or part of a dwelling-house, or

(b)an estate, interest or right in or over land within paragraph (a),

but see subsections (3) and (4).

(3)Anything that in the course of a property business is done for creating (by construction or adaptation) a dwelling-house, or part of a dwelling-house, from which income is to be generated is, for the purposes of subsection (2), to be treated as done for the purpose mentioned in that subsection.

(4)An amount borrowed for purposes of a property business is not a dwelling-related loan so far as the amount is referable (on a just and reasonable apportionment) to so much of the property business as consists of the commercial letting of furnished holiday accommodation.

maths
Posts: 6493
Joined: Wed Aug 06, 2008 3:25 pm

Re: Interest relief on a mixed property?

Postby maths » Wed Jan 11, 2017 11:07 pm

Not really sure what your point is.

For interest deduction interest needs to be apportioned if purchase of mixed property whereas for SDLT the residential rates apply where the transaction consists "entirely" of residential property.

Another John
Posts: 29
Joined: Wed Aug 06, 2008 3:16 pm

Re: Interest relief on a mixed property?

Postby Another John » Thu Jan 12, 2017 8:14 am

Again, thank you Maths for kindly giving your advice.

My point was that it seems illogical that HMRC have 2 separate definitions for the same commodity depending on which tax is being applied. I am always grateful for small mercies though because the SDLT treatment means that I shouldn't be hit too hard when I transfer some equity to my grown-up children so they can benefit from some additional income, which opens another can of worms that needs to be dealt with!


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