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Posted Wed, 22 May 2024 09:17:59 GMT by ZQ
Hi, I am not self-employed as I have rental income only. I have taken out a loan with an interest rate of 3%, and over the course of a year, I paid £3,000 in interest. The loan was for BTL property purchase, however, due to increasing interest rate I am unable to do so. I then deposited the loan amount into a savings account with an interest rate of 4.5%, earning £4,500 in interest over the same year. Considering my tax rate is 40%, I need to pay £1,800 in taxes on the interest income (£4,500). This results in a negative net income when the loan interest payments are taken into account. Net result: £4,500 (interest earned) - £3,000 (loan interest paid) - £1,800 (taxes) = -£300 I would like to know if the loan interest paid can be deducted from the interest income to reduce my taxable amount. Otherwise, the tax payment makes this investment unprofitable. Thank you.
Posted Fri, 24 May 2024 14:31:36 GMT by HMRC Admin 32

As you havent actually used the loan/finance for actual property purchase then the interest charged on the loan cannot then be used against any rental income that you receive. the interest that the loan then generates is still taxable income. The interest charges are not deductable.

Thank you.

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