interest deduction on mortgage on rental property

[david 2]

I moved out of my main residence earlier this year and I am now looking to rent it out. I have no mortgage on the property at present but i would like to raise some money and hopefully obtain interest deduction against the rent.

As I didn't take out the mortgage to buy the property can I do so now and still get tax relief against the rental income. Am I limited to say a mortgage equal to the original purchase price or can I get tax relief whatever the size fo the mortgage (property is now double the original price). Do I or is it prudent to the raise the mortgage prior to letting the property out ?

[Neale]

It is the purpose of Borrowing which determines it's tax relief status, not the security for the loan. Therefore you would not normally be able to deduct remortgage interest from Rental receipts when calculating income tax liability.

neale@coules.com

[david 2]

If I raise the money and then use it to but a second rental property in say 3-6 months time i.e. I am now a cash buyer then presumably this would be OK as I have a business purpose to raising the money ?

[Neale]

To avoid any ambiguity regarding the purpose of the oan, you may be better served raising the finance at the time of the purchase of the new property, but under such circumstances I believe relief would normally then be available. You need to be careful also that the properties are owned in hte same right etc, so that they are treated as a single business.

neale@coules.com

[david 2]

Thanks. I assume ownership with the same rights means both properties being owned by the same person(s) e.g. my wife and myself ?