I currently act for a partnership that undertook a property conversion in 2012/13 which generated taxable losses of c£250k to carry forward against future rental profits from the property. Every year since, the rental profits have been covered by these losses and there are still more losses to use.
The partnership accounts currently show the partners are owed c£130k in capital investment and undrawn profits which they would like to obtain. They are looking to remortgage the property in order to raise sufficient funds to draw their partner accounts down to zero.
My first question: I believe if they were to overdraw their partner accounts, there would be a restriction on the mortgage interest tax relief as it is no longer being put to business use. Is this correct?
Further to this (and not directly connected), the property in question is a mix of commerical and residential and so is caught by the new restriction on landlords interest relief as far as I understand it. What I cannot see is how this works in practice. I assume I apportion the loan between the commercial and residential elements somehow and 25% (this year) of the interest relating to the residential property is restricted to basic rate but how do I do this? Does each partner declare the restriction on their personal tax returns if it applies to them? And if so, do they then utilise a different amount of the brought forward losses to cover the income?
As you can see I'm a little out of my depth here and am getting even more worried by how these two may interact!
Any help would be greatly appreciated.