If a husband and wife jointly own two BTL properties in unequal shares (e.g. 90/10) but for one they have not submitted a form 17 and for the other they have then the rental income is shared 50/50 for one and 90/10 for the other but what about the mortgage interest, especially where the borrowing on one property might have been used to part fund the other property?
I can see two possibilities:
1. The interest is apportioned according to the property that is mortgaged.
2. The interest is apportioned according to which property was funded by the debt.
I am unsure whether residential property interest is allowable except for a mortgage secured on the property. If that is so then it would imply that 1. is the correct interpretation (but can lead to the situation where the mortgage interest is allowable even though the mortgage exceeds the value of the property when the property entered the letting business as it is still being used to fund the business).
But if the interest is allowable even if the mortgage isn't secured on the let property (e.g. people who borrow against their home to buy a BTL in order to access lower interest rates) then 2. would appear to be a better fit (but where there is capital in the business there is an ambiguity as to whether the mortgage was repaying the capital account on the mortgaged property which the owners then introduced back into the business)
There is a third possibility, that the restricted mortgage interest is apportioned according to the ownership proportions but the profit is 50/50 in the absence of a form 17 (the restricted mortgage interest no longer affects the profit of the business and, instead, provide a tax credit.) But I suspect if that is the case then many people have been doing this incorrectly over the last few years!
Unfortunately, all my googling returns hundreds of pages on restriction of mortgage interest relief but nothing on how to apportion the mortgage interest when there are multiple properties involved.
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