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Is the mortgage interest allowable if.....

Is the mortgage interest allowable if.....

Mr & Mrs buy a house and move into it.

Mrs dies and Mr doesn't want to live there anymore so he buys another house and lets out the first house.

When he does this he takes out a mortgage which is secured on the second house.

So whilst the mortgage is actually used to buy house two it is raised (partly) in order to enable house one to be let.

Can he claim the interst on this mortgage against the rent on the first house?

If not, would he be able to if the mortgage was secured on the first house?

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04th Aug 2012 12:15

It does not matter what the house was secured on - what matters is the value of the house when it is first let.

 

HMRC's view is that, if you were to draw up a capital account, is the loan financing the house and the business? What is the value of the private house when it first let out?

 

As long as it can be argue that it is funding the propety rental business, you will be fine.

 

See HMRC manual http://www.hmrc.gov.uk/manuals/bimmanual/bim45690.htm

 

Thanks (1)
05th Aug 2012 14:43

Have a look at...

this thread from a few weeks back.  You should be OK but do make sure you get a valuation and incorporate it into the business balance sheet.

Thanks (1)