Interest Assessable/Interest Deductible?
My client bought a house in 2004 using a regular mortgage for half the cost of the property and his mother took a remortgage on her own house and loaned him over £100,000 to cover the other half. Both loans are on an interest-only basis.
He pays to his mother the exact amount of the interest charged on her remortgage.
Last year he moved out of the property and let it out. He wants to claim loan interest relief against the letting income for both the mortgage interest and the payments to his mother.
On the face of it this seems reasonable but I have doubts. Do we have a problem with "wholly and exclusively" in that the purpose of the remortgage of the mother's property was to provide a gift to the son rather than directly to purchase the property?
If we did claim tax relief on the payments to the mother would we have an issue in that she has private loan interest income notwithstanding that this offsets a liability of her own? Or has she always had assessable investment income from the outset which should have been declared?
Any help gratefully received.
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