Offset Mortgages: Buy-To-Let

Offset Mortgages: Buy-To-Let

Didn't find your answer?

A client has an offset mortgage on his main residence, and £80,000 in savings that is used to reduce the interest arising.

He now wishes to use the £80,000 savings to purchase a buy-to-let property.

Such a transaction will result in increased interest being incurred on the offset mortgage.

One could argue that this increased interest was a result only of the purchase of the buy-to-let property, therefore satisfying the 'wholly and exclusively test'

Your views would be appreciated.

Matt

Replies (3)

Please login or register to join the discussion.

avatar
By Hollyhurst
01st Mar 2005 00:09

interest allowable
There are different ways of doing this. One would be to mortgage the new property and the interest is allowable against rent received. The £80,000 is then not touched.

Also look at Revenue manual BIM 45700 for additional information.

Thanks (0)
avatar
By jplowman
21st Feb 2005 15:31

Purpose of loan
It is the purpose of the loan that matters, not what you have used to secure the loan.

As things stand I would say that the purpose of the loan is for the main residence. If you have savings reducing the interest that you then spend, I'd say it has no bearing on the purpose of the original loan.

Rather than use the savings to buy the buy-to-let, why not keep the savings where they are but increase the loan, or take out an additional separate loan?

It seems clear to me that if you did either of these then the extra £80,000 being borrowed is for the purpose of buying the property to let, and hence would be allowable. I am not an IR inspector though (or even an accountant for that matter) so maybe my interpretation is flawed or IR may have counter-arguments.


I should also have read it more thoroughly!!! (see revised attempt above)

Thanks (0)
avatar
By AnonymousUser
21st Feb 2005 10:26

Guess it depends on the terms and conditions
Unless terms specifically match the savings against the original borrowing, I suspect Revenue would argue that the savings reduce both elements of the increased mortgage, pro-rata.

[EDITED]

Should have read the question more thoroughly. If there is no additional borrowing, I fail to see how any (additional) tax relief can be obtained. The fact that there is a cost in terms of additional interest is tough.

Thanks (0)