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Posted Sun, 16 Jan 2022 09:40:41 GMT by Daniel Pearce
We have purchased a property (Property B) which is to be used as either a residential let or furnished holiday let. Under either option my understanding is that I would be entitled to offset associated mortgage interest expense as an allowable expense (subject to a cap of 20%). However the mortgage has actually been taken out on our main property (Property A), which was unencumbered. Despite the fact the funding expense is on a separate property, does the fact that the mortgage was wholly and exclusively taken out for the purpose of purchasing Property B still permit me to use the mortgage interest for tax relief against the income derived from Property B?
Posted Mon, 17 Jan 2022 12:57:54 GMT by HMRC Admin 2
Hi,

As the mortgage was taken out to fund the purchase of the rental property, the mortgage interest is allowed as a deductible expense at the restricted rate.

Thank you.
Posted Mon, 17 Jan 2022 14:41:45 GMT by Bella Boo
Did they not change the rules so that mortgage interest is no longer a deductible expense and instead is a basic tax reduction only?
Posted Mon, 17 Jan 2022 18:31:36 GMT by HMRC Admin 10
Hi

Thank you for your question.

That’s correct, the tax relief that landlords of residential properties receive for finance costs has been restricted to the basic rate of income tax.

For further information, please see :

Tax relief for residential landlords: how it's worked out

Regards.

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