Tax relief is allowed on interest paid on mortgages/loans taken out to finance the purchase of assets held within a business. Landlords who own two or more properties are deemed to own a ‘portfolio’ of business assets.
Lenders have designed products that treat the ‘portfolio’ as one single business account regardless of the number of properties purchased or whether the full amount of capital has been utilised. The individual properties may have separate mortgages each with different interest rate charged but the ‘portfolio’ is treated as one single business account.
One portfolio means one agreement, one monthly payment and one mortgage statement.
Should not all of the capital be used, tax relief on interest payments made remains fully allowable because the original reason for the mortgage/loan remains namely to finance the use of capital by a property business.
Avril owns six properties with a total value of £2 million. With a portfolio mortgage outstanding of £1.7 million there is a ‘shortfall’ of £300,000. This amount will not be the equity found in any one property but in the portfolio spread over the six properties. This allows £300,000 for further investment; interest will be fully tax deductible.