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Relief on a BTL after equity release is repaid

Client had an equity release on home, which was then replaced by borrowing from grandchild

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My elderly client took out an equity release product on her home to fund her retirement.  Her health deteriorated which necessitated her going into a residential care home, at which point she rented out her home.

At that time cash of £150k had been released plus the rolled up interest totalled £200k.  The arrangement was identified by my client's grandchild and  he decided to pay off the equity release company by transferring £200k of his own funds to the equity release company a couple of months after the letting started.

My client and her grandchild agreed that the £200k would be lent at a commercial rate and a first charge was agreed against the property.

My question is:

Can the interest my client is paying for the loan be offset against the rental income she is receiving.  Or does the arranging of the loan after the rental has started fall foul of BIM45700 or BIM45690 as the loan was taken out for non commercial reasons.  I am thinking that the equity release arrangement differs in a way from a usual mortgage, so the loan from the grandchild is seen as a new arrangement rather than change of finance providers.

I would appreciate your thoughts

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By Accountant A
11th Oct 2019 15:16

HMRC manuals often represent HMRC's reading of the legislation which, in this instance, is (I understand) not correct.

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