(1) Residence bought 1999 for £105k, with mortgage (mortgage 1) of 60k. Interest on 60k clearly not allowable for tax purpose
(2) Flat no 1 bought for letting 2001 for £80k. Mortgage on residence increased(same lender) to 130K ie increase of 70K, all secured on residence. Interest allowable on 70k, not allowable on 60k
(3) Flat no 2 bought for letting 2002 for 65k. Earlier mortgage of 130k repaid. New mortgage (mortgage 2) obtained from different lender of 200k, secured as to 160k on residence , 40k on flat 1.
All loans are interest only.
The nature of the security given is not relevant in determining purposes of loans for tax. Following Clayton's Case (see HMRC instructions EIM 26260 penultimate para. and EIM 26261 ) the oldest part of mortgage 1 will be deemed to be repaid first by mortgage 2 ie the 60k on residence
This it seems possible to argue that no part of mortgage 2 is for the residence and interest on 200k is in principle all allowable, subject to being used for business purposes. There were repair/additions of 10k after purchase of flat2.
Allowable interest is therefore that on 70k on flat 1, plus 65k on flat 2, plus 10k on repairs ie 145/200 of total mortgage
Is this correct ? Thanks in advance for help on this complex affair
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