Landlord's mortgage interest

Landlord's mortgage interest

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A landlord moved out if his old home in May and straight into his new home. He intended to let out the old property as soon as possible but his first tenant did not move in until September.

My question is, what was the point at which mortage interest became tax-deductible?

I should know this but I haven't come across it for a while and my two reference books appear to give conflicting advice.

Thanks in advance.

Replies (6)

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Red Leader
By Red Leader
21st Nov 2012 12:19

my view

The interest is allowable from the date the property was made available to be let. So if the property was empty and the letting agents or prospective tenants were told that they could move in from May, then that's the date.

Happy to stand corrected by more knowledgeable members.

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Euan's picture
By Euan MacLennan
21st Nov 2012 12:25

The other view

My view is that until the property was actually let in September, the client did not have a property letting business (assuming that he was not already letting another property) and so, cannot claim any continuing revenue expenditure before that date.

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By andy.partridge
21st Nov 2012 12:32

@ Euan

I'm not sure this is relevant, but the client did let a different property in the previous tax year but sold it to help fund the purchase of his new PPR!

In other words there has been, historically, what you refer to as a property letting business.

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By Chris Smail
21st Nov 2012 13:16

I thnk I am with Red

Classically a business does not start on first sale but  when preparatory steps are first made to make a sale (as opposed to pre trading expenditure) I would therefore look for the date Letting Agents were advised,

 

Chris Smail  - www.langer.co.uk

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By Steve Kesby
21st Nov 2012 13:30

I agree with everybody!

What Euan's saying accords with HMRC's view in PIM2505.

However, I agree, with Andy that the old rental property and the new rental property are all part of one deemed business as the legislation defines it.

If Andy's client sold the old PPR and bought a new one, normally he'd have arranged to complete both transactions simultaneously and new mortgage/property would have stood in old mortgage/property's shoes.

Instead he's chosen to remove old rental property from the business and put new rental property (subject to mortgage) into the business, and so is effectively using mortgage on new rental property (old PPR) to fund a withdrawal of capital.

If old rental property had a mortgage and stood empty, everyone would be clear that the interest would be allowable.

I think Andy's perspective is tenable (and represents his client properly), but I'd agree with Euan that there's a risk of HMRC challenging the position, based on their guidance, which covers a different situation.

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By carnmores
21st Nov 2012 13:44

yes i side with the 'available' arguement

if an agent was instructed thats that

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