Interest set against property

Interest set against property

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An individual raised a loan on his main home, A, several years ago to buy 3 buy-to-let properties, B. The interest from this loan was offset against his income from B, this was accepted by HMRC in writing.

He then went on to raise a second loan, in Euros, on his holiday cottage in the UK, C. This cottage was kept for personal use and is not let. He used the Euro loan on C to purchase a buy-to-let property in Portugal, D. From the mortgage lenders point of view this was simply an equity release from one of the property assets, his cottage C, in order to expand the buy to let investment portfolio.

There 3 questions:

1. Can he offset the interest from the Euroloan against the UK let properties, B?
2. Can he split the interest from the Euroloan against the UK let properties, B, and the Portugese property, D? This is to optimise his overall tax position.
3. Can he change the properties against which the interest is set from one tax year to the next? This because the rent originating from the let properties is expected to change from year to year.

The HMRC Business Income Manual at BIM 45700 is not clear in these respects.

Tom Cullam

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By ACDWebb
30th Jan 2007 14:09

Taking them in order
1) No. It was used for the foreign property business
2) No, as above
3) only within the separate UK & Foreign businesses.

The UK properties are one property business and the Portuguese property another foreign business. You cannot mix the two. Each should have their own accounts.

So far as interest on the UK property business is concerned it does not really matter as they are a single business against which the interest can be set.

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By Tom Cullam
02nd Feb 2007 18:55

Does currency matter
But does it matter if a loan is raised in Euros against a UK portfolio rather than sterling?

I thought that it was acceptable to raise a loan against a UK property portfolio and use the loan for any purpose. In which case it should not matter if it were euros or sterling.

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