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TaxationWeb by Arthur Weller and Amer Siddiq

Property Tax Specialist, Arthur Weller and Property Investor, Amer Siddiq explain the different types of interest repayment for property investors, and when interest can and cannot be offset against rental income.In this strategy you will learn about the different types of interest repayments that property investors may come across.

More importantly, you will understand when each of these types of interest can and cannot be offset against your rental income.

Interest on Mortgages

It is probably fair to say that this is the most common type of interest that is associated with property investors.

This interest relates to the amount you pay back to your mortgage lender that is above and beyond the initial amount that you borrowed.

Tax Tip

It does not matter if the mortgage is a ‘repayment’ or an ‘interest-only’ mortgage. The fact that interest repayments have been made means that they can be offset.


This is illustrated through the following case study.

Case Study – Interest on Mortgages

John buys an investment property for £100,000.


The finance for the property is made up from a £20,000 deposit (provided from his personal savings) and an £80,000 buy-to-let mortgage (provided by a High Street Bank).

In the first year of the mortgage he pays £2,500 in mortgage interest. This entire amount can be offset against his income from the property.

This means that if he received £5,500 income from his property, he would only be liable to pay tax on £3,000.

Interest on Personal Loans

Tax Tip

If you take out a personal loan that is used ‘wholly and exclusively’ for the purpose of the property, then the interest charged on this loan can also be offset.


The important point to note here is that personal loans must be used in connection with the property.

Following are some typical property investment scenarios detailing when the interest charged on a personal loan can be offset against the property income.

a) Loan used for providing deposit

Most buy-to-let mortgage lenders require you to provide a 20% deposit before they will lend you the remaining 80% in the form of a mortgage.

If you don’t have the 20% deposit, then it is likely that you may well need to finance the deposit by getting a personal loan.

If you do take out a personal loan for the 20% deposit, the interest charged on this loan can be offset against the property income.

If you are considering doing this, or have already done this, then what this means is that you have a 100% financed investment property, where interest charged on both the mortgage and the personal loan can be offset against the rental income.

b) Loan used for refurbishments/developments

Periodically, you will need to refurbish or even develop a property.

Imagine that you have just purchased a property that needs totally re-decorating and modernising. If you take out a loan for this kind of work, then the interest charged on the loan can be offset against the property income.

Alternatively, you might decide to embark on a more expensive property extension, e.g., to build a conservatory.

Again, the same rule applies here: The interest charged on the loan can be offset.

c) Loans used for purchasing products

If you purchase goods from retailers where finance is available and these goods are used in your property, then the interest charged can also be offset.

This is more likely to happen if you are providing a fully furnished property, e.g., a luxury apartment.

If this is the case, then you may decide to buy the more expensive items on finance.

Such items are likely to include

- sofas, dining table & chairs, beds;
- cooker, washing machine, fridge/freezer;
- carpets, flooring, etc.

If you are paying for these products over a period of time (e.g., 6, 12, or 18 months), then any interest charged by your creditor can be offset against your rental income.

When You Cannot Offset the Interest Charged on Personal Loans

You now have a good understanding of when interest charged on loans can be offset against the property rental income.

Now consider the following:

a) loans used for paying for a family holiday;
b) loans used for buying a new car;
c) loans used for paying children’s tuition fees, etc.

It is clear from the above examples that all these scenarios have one common characteristic:

THEY HAVE ABSOLUTELY NOTHING TO DO WITH THE PROPERTY INVESTMENT!

So, suffice it to say that if the loan has nothing to do with your property investment, then any interest repayments cannot be offset.

To help you decide if an interest repayment on a loan can be offset, always ask yourself the following: ‘Is the loan being used for the sole purpose of my property?’

If the answer is YES, then you can generally offset the interest.

If the answer is NO, then you cannot offset the interest.

The above article is an extract from '27 Proven Property Tax Saving Strategies', a New Tax Guide launched by the Property Tax Portal, jointly written by Property Tax Specialist, Arthur Weller and Property Investor, Amer Siddiq.

For more details please visit: 27 Proven Property Tax Saving Strategies