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Where Taxpayers and Advisers Meet

BTL mortage interest tax relief on remortgage

NickPrice
Posts:32
Joined:Fri Sep 11, 2015 12:39 am
BTL mortage interest tax relief on remortgage

Postby NickPrice » Mon Mar 22, 2021 12:22 pm

I have a tricky question on which I am hearing different things. If I buy a property in cash and remortgage it later (after works), can the mortgage interest be used for tax relief? The reason I am unsure is that I read that an uplift in value on a property does not allow one to remortgage and take further tax relief (it is capped at original value of the property)? So how does that apply to an initial cash purchase?

AGoodman
Posts:1245
Joined:Fri May 16, 2014 3:47 pm

Re: BTL mortage interest tax relief on remortgage

Postby AGoodman » Mon Mar 22, 2021 2:17 pm

You can only deduct expenses incurred in the property business - i.e. interest payable on a loan taken out to acquire the property.

If you are buying with cash but then taking out a loan secured on the property, you are not taking out the loan to buy the property, you are just using the property as security to do something else with the loan monies.

If you used the loan monies to buy another investment property, or to fund another business, you might be able to deduct the interest against profits from those sources.

NickPrice
Posts:32
Joined:Fri Sep 11, 2015 12:39 am

Re: BTL mortage interest tax relief on remortgage

Postby NickPrice » Mon Mar 22, 2021 4:12 pm

Thank you: that is clear. Is the situation different, if the funds used for purchase and refurb are already partially borrowed from family? It needs to be returned within a year, hence the need to remortgage.

NickPrice
Posts:32
Joined:Fri Sep 11, 2015 12:39 am

Re: BTL mortage interest tax relief on remortgage

Postby NickPrice » Tue Mar 23, 2021 1:59 pm

Does anyone know the answer to the above?

Ian Wright
Posts:295
Joined:Wed Aug 06, 2008 3:23 pm

Re: BTL mortage interest tax relief on remortgage

Postby Ian Wright » Tue Mar 23, 2021 3:31 pm

Most people give the wrong advice on this subject.

You can get both income tax relief on your later mortgage interest and use the cash raised for anything you please since by buying the property for cash, your rental business owes you that money back and a loan can be raised to rectify this position.

It almost defies logic but HMRC actually confirm it and it is less understood by tax advisers than accountants because of the accounting nature of the capital account transactions and the use of a balance sheet.

Please see example 2 in this HMRC note... https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

HMRC did actually change their guidance on this a few years back but the BIM45700 note still exists. Some tax advisers have misinterpreted the new guidance believing new mortgages must be wholly and exclusively for the purpose of the property business but what they don't realise is that the purpose of the loan to pay capital back to the owner is wholly and exclusively for the purpose of the property business because the proprietor of a business may withdraw the profits of the business and the capital they have introduced to the business.

The winning arguments are discussed here very well. https://www.accountingweb.co.uk/any-answers/remortgage-interest-allowability-0

I'd suggest you show these notes to your tax adviser/accountant or if you do not have one get one because HMRC might try to fight you on this.

Regards

Ian
Ian Wright
Tax Consultant
Wright Tax Consultancy Ltd
Hampshire
UK

bd6759
Posts:3558
Joined:Sat Feb 01, 2014 3:26 pm

Re: BTL mortage interest tax relief on remortgage

Postby bd6759 » Tue Mar 23, 2021 11:36 pm

I agree with Ian Wright.

Example 2 sets it out quite succinctly.

NickPrice
Posts:32
Joined:Fri Sep 11, 2015 12:39 am

Re: BTL mortage interest tax relief on remortgage

Postby NickPrice » Wed Mar 24, 2021 12:50 am

Thanks both: I did see this elsewhere in my research. However, example 2 relies on the value increase over time and also includes an initial mortgage. In our case we are buying in cash (because the property is likely not mortgageable in current condition), doing a light refurb, and then remortgaging to get at least some money out. The value is 165K as now and 190K after works.


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