Increasing a mortgage and claiming interest relief

by Readers Question

8:13 AM, 3rd March 2017
About 2 years ago

Increasing a mortgage and claiming interest relief

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Increasing a mortgage and claiming interest relief

HMRC Quote;
If you increase your mortgage loan on your buy-to-let property you can also treat interest on the additional loan as a revenue expense, but only up to the capital value of the property when it was brought into your letting business.mortgage increase

HMRC Example;
You purchased a buy-to-let property for £120,000 with a mortgage of £90,000 and let it to a tenant straight away.
3 years later the property is valued at £150,000 and you increase your mortgage on the property to £115,000. All of the interest on the mortgage can still be claimed as a revenue expense as the loan doesn’t exceed the initial £120,000 value of the property when it was introduced to your letting business.

If I have no other borrowings, does this mean I can’t claim interest on the £30,000 deposit until I increase borrowings?
But what if I have a mortgage on my main residence, I could have paid £30,000 off main residence mortgage, but instead used for buy-to-let deposit. So as I now have borrowings can I claim same interest rate charged on my main residence?

Keeping it simple, lets assume Section 24 does not exist.

Michael



Comments

Neil Patterson

8:15 AM, 3rd March 2017
About 2 years ago

Hi Michael,

Your understanding seems correct, but to claim interest relief on a main residence mortgage you need to be able to prove that you used the amount you are claiming specifically for your business.

Mark Alexander

8:57 AM, 3rd March 2017
About 2 years ago

I agree with Neil.

If you can prove you increased your residential mortgage by £30,000 to fund the deposit you can offset interest on that element of your mortgage as a business expense.

It's all about timing and purpose of loan with documentary evidence to back it up if challenged.
.

Romain Garcin

9:43 AM, 3rd March 2017
About 2 years ago

"If I have no other borrowings, does this mean I can’t claim interest on the £30,000 deposit until I increase borrowings?"

The starting point is that, in any case, there are no interests accruing on this since you did not borrow it.

Mark Alexander

9:44 AM, 3rd March 2017
About 2 years ago

Reply to the comment left by "Romain Garcin" at "03/03/2017 - 09:43":

Hi Romain

We don't know that.

He might have extended his personal mortgage to raise the deposit.
.

Romain Garcin

10:19 AM, 3rd March 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "03/03/2017 - 09:44":

Hi Mark,

My interpretation of Michael's scenario is that the £30k were not funded through a loan as he wrote "if I have no other borrowings" and "I could have paid £30k off main residence mortgage".

If the £30k were funded through a loan, including by increasing the mortgage on his home, then any interests are allowable.

Denise G

23:46 PM, 3rd March 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "03/03/2017 - 08:57":

Back in 2007 my partner and I converted the mortgages on our two homes from repayment to interest only loans and then used every penny thus released as deposits on BTLs - so I have a question but I'm not quite sure what it is (but I am pretty sure, as no-one ever asked where we got the deposit money from, that no-one has ever suggested we might have made some kind of a claim against our tax bills). Maybe the question is: Have we missed the boat (due to not our realising that we might need to point one of the 3 accountants we've used since that time in the right direction) re claimimg anything now against tax bills due to the way we raised the money to fund our BTL deposits?

Mark Alexander

5:58 AM, 4th March 2017
About 2 years ago

Reply to the comment left by "D D" at "03/03/2017 - 23:46":

Your Accountants now will be able to answer this question.

Can you prove what you have said?
.

Romain Garcin

9:23 AM, 4th March 2017
About 2 years ago

Reply to the comment left by "D D" at "03/03/2017 - 23:46":

You should check with an account, but IMHO you cannot claim anything:

The loan is purely to fund your home so the interests are not an allowable expense.
What you have done is to improve your cash-flow in order to be able to save for BTL deposits. The deposits were funded through savings, not loans.

Mark Alexander

10:03 AM, 4th March 2017
About 2 years ago

Reply to the comment left by "Romain Garcin" at "04/03/2017 - 09:23":

I beg to differ.

D D implied that additional money was raised to fund BTL deposits.
.

Romain Garcin

11:09 AM, 4th March 2017
About 2 years ago

Perhaps D D can clarify.

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