We have been reading recently that there are a lot of Buy To Let landlords who are moving from a standard Buy To Let Mortgage into Commercial Mortgages. They are doing this in the mistaken belief that this will allow them to continue to deduct the mortgage interest as a cost against their full rental income rather than having it restricted to basic rate tax.
This is completely wrong as the legislation does not specify the type of borrowing it specifies the purpose of the finance costs. Accordingly it doesn’t matter what type of finance is put in place e.g. Commercial, Sharia Type or Personal Loan. The key point is what the loan is used to finance and if it is for a dwelling house then the finance costs are restricted to basic rate tax.
It should also be noted that:
- Where costs are paid to arrange the loan e.g. mortgage broker fees then these are also caught by schedule 24.
- Where the financing is used to purchase both domestic and commercial or furnished holiday accommodation then the loan or loans are apportioned on a just and equitable basis between the properties so that only the proportion related to the domestic dwelling is restricted.
Anyone being advised to change to a commercial loan in order to avoid schedule 24 should get tax advice from a property tax specialist such as ourselves before undertaking such a change.
Reynolds and Co can help you with all aspects of property tax advice.
Check out our other blogs or for more information on this or our other services please visit our website at www.reynoldsandco.co.uk or contact Nigel Reynolds at:
Telephone: 0333 210 1717