Relief on buy-to-let mortgage

Availability of tax relief on further borrowing.

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Client and his wife own two properties jointly which are both let, and details of the individual shares of the income are declared on their individual SA Returns. There were no mortgages on either property. One of the properties was purchased in 1979 and was their domestic home until 2011 when this was also let. Clients then moved to a different part of the country and rented a property themselves before purchasing a new house to live in. In 2014 they took out a mortgage on their previous home (let since 2011) to fund the purchase of their new home.

On 19.10.2015 HMRC published a document – Stamp duty and other tax on property. In this they state that additional borrowing on a buy-to-let property is allowable up to the capital value of the property when it was brought into the letting business.

Is it correct to claim that the property on which the mortgage was obtained was brought into the letting business in 2011, three years before the mortgage was taken out, and that relief can be claimed on this mortgage? Does it matter that the property was previously their home for 30 years?

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By stratty
28th Dec 2016 15:49

Do you have a link to this HMRC document?

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Replying to stratty:
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By rainbow
28th Dec 2016 17:03

Try this:
https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-case...
I quoted from a section with the heading 'Increasing a mortgage.

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By JCresswellTax
29th Dec 2016 09:28

The business is allowed to borrow an amount to allow it to repay the capital accounts of the proprietors.

The previous PPR was introduced to the business in 2011. Whatever the value of the property at that date, will be added to the capital account balance.

The business can then take out a mortgage (secured against that rental property) and tax relief will be available up to the value of the capital accounts, no matter what the money is used for.

It doesn't matter that it was previously their PPR, but just ensure you use the market value at 2011 as your starting point.

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Replying to JCresswellTax:
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By kaff
30th Dec 2016 15:40

Why is repaying the capital accounts of the proprietors considered to be wholly and exclusively for the purposes of the business, rather than wholly and exclusively for the purposes of the proprietors?

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Replying to kaff:
By Ruddles
30th Dec 2016 16:37

Because the new borrowing, rather than the capital previously injected by the owner, is being used to finance the capital assets of the business.

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