Tax relief on mortgage interest for previously unemcumbered property?

Tax relief on mortgage interest for previously unemcumbered property?

12:13 PM, 24th April 2014, About 9 years ago 11

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I have a property which once upon a time had a mortgage on it and the property was let. I used to claim the mortgage interest as an allowable expense each year and everything was hunky dory.

Then it came to pass that I paid off the mortgage and could no longer claim any interest against tax. Later on I took a loan of 150K for 50% of its value (300K) on the property. The original purchase loan was 60K My understanding at that time was that only the original purchase loan interest could be used as an expense. Then the seed of doubt was sown in my mind as I noticed an article on this website that indicated that interest on a new loan could be offset against Tax. Is that in fact correct??

If so, does it matter what was done with the loan? About 70K was used as a deposit for another BTL property and the rest was used for non BTL purposes. My inkling is that only the 60K used for the BTL will be tax deductible.

Would welcome any learned views


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Vanessa Barlow

18:01 PM, 28th April 2014, About 9 years ago


Carl Bayley's book on property tax has a good and easily understood explanation of how this works. My understanding, as I looked into this, because I did a let to buy on my property when I moved house is that yes you can benefit from the same reliefs PRR etc. in my case, it was only for 18 months, so the combination of different reliefs, and the fact that it was a short period of time meant I had no CGT liability. But depending on the length it is let out for, and the increase in value, you could have some liability, but at a reduced amount. One way to get around this also would be to "flip" like an MP, and change your main residence to your London property in the period before you sell, and then you are selling a private residence, not an investment property! But this has to be a real and genuine move, ie you need to prove that you no longer live in your home, and you really have moved back into your BTL, be able to show evidence, bills etc that you are living there.

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