But in April 2017 HMRC rewrote its guidance to restrict deductions to those cases where the proceeds of the loan are actually used in the property business and not for other purposes.
Prior to 2017 HMRC manuals used to contain this example:
- You purchased a buy-to-let property for £120,000 with a mortgage of £90,000 and let it to a tenant straight away.
- Three years later the property is valued at £150,000 and you increase your mortgage on the property to £115,000. All of the interest on the mortgage can still be claimed as a revenue expense as the loan doesn’t exceed the initial £120,000 value of the property when it was introduced to your letting business.
- If you increased the mortgage to £125,000, the interest payable on the additional £5,000 is not tax deductible and cannot be claimed as a revenue expense.