Finance Costs - allowable expense?

Hello, I am considering the best way to finance a property which is in need of refurbishment so a buy to let mortgage is not an option. I have 3 options to raise finance and wonder if the interest part of the repayment is an allowable expense on all of them: 1. Personal loan 2. Bridging finance 3. Remortgaging my unencumbered residential property The plan is to refinance to a buy to let mortgage once the works are complete. However, I would also be interested to know if there would be any change to allowable expenses regarding finance interest payments if the property was sold rather than rented. Many thanks

Hi,
Thank you for your question. Certain rules must apply for interest on loans to be an allowable expense for rental business. Outlined in PIM2052, PIM2054 & PIM2105, refer that incidental costs in obtaining loan finance are generally deductible if they were wholly and exclusively for the rental business. This means that interest on the personal loan would be allowable if these rules apply. In regard to the Bridging finance, depending on the usage of the finance would determine the eligibility. In terms of re-mortgaging this may also be claimed if used towards the rental business. Please refer to the following guidances for additional information:
PIM2052 - Deductions: interest: overview
PIM2054 - Deductions: interest: restriction for income tax purposes from 2017/18: introduction
PIM2105 - Deductions: main types of expense: fees for loan finance and similar items
Thanks

Hello, Could you point me in the right direction for the guidance relating to claiming finance costs and interest relief from remortgaging my own unencumbered residential property and using the funds for a property business. PIM2052 states in General Rules "A customer cannot, for example, deduct interest on a private loan, such as a loan used to buy their private residence." Is this only applicable if the the loan is not used wholly and exclusively for the property business? NB I am subject to income tax not corporation tax As I understand it, the finance costs would be subject to interest relief at 20% in a property rental (investment) business but fully deductible as a business expense when trading (flipping) property. Is that correct?

Hi ,
 

Thank you for your question. If the loan taken out from remortgaging your own property was used 'wholly and exclusively' for the property business then you would be able to claim relief on the interest paid on this loan per the guidance at  PIM2052 - Deductions: interest: overview . I am unsure what you mean about trading (flipping) property ? Thank you .

Hello Thank you for your reply. Regarding trading (flipping) property; I mean buying a property, refurbishing and selling thereby creating a as a self employment business and completing the SA103 Self-Employment supplementary page. In this instance I understand the finance cost of remortgaging my own home would be fully deductible as a business expense? Thank you