interest relief on main residence for overseas BTL

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    interest relief on main residence for overseas BTL

    Last year I re-mortgaged my main residence to help fund an extension on that residence. After starting the extension I received an unexpected inheritance. I subesquently was able to purchase a property overseas for the purpose of holiday lets. At the point of receiving the inheritance I had not used all the money I had received from the remortgage for the extension.

    Q. Can I claim that I used the inheritance to fund the remainder of the home extension and therefore use the remaining unused cash from the re-mortgage to fund part of the overseas property and hence claim interest relief on that amount? If so is there anything I would have to show to prove this?


    Do you have any evidence to support your contention? Or was it something which occurred to you AFTER the purchase?


      Thanks for the response.

      I made the decision to purchase the overseas property upon receiving the inheritance. To help the decision I produced a basic model in order to calculate how much I could afford and projected cashflows which includes the different source of the funds. However looking back there is no other tangible or 3rd party evidence to support any of this, rather it was a decision made.

      There was therefore a "pot" of cash sitting in an account from both sources of funds - which was used to complete the extension and also complete the overseas property purchase.

      Is the fact I had a simple model showing this sufficient? I appreciate this is probably an unusual scenario - if this does not support the contention, what steps could have been done to allow the remainder of the loan to qualify for interest relief on the overseas property?

      Thanks again


        Interest is an allowable expense against rental income upto the value of the property when it is first let. There is no requirement that the loan (or mortgage) has to be secured on the property that is let.

        I don't see any problem in you rejigging your finances to withdraw the capital you put into your letting business and replacing it with a loan that you have secured elsewhere.


          >>There is no requirement that the loan (or mortgage) has to be secured on the property that is let.

          But there is a requirement that the PURPOSE of the loan is to fund the acquisition. (Alternatively, you can borrow against the value of a rental property.) For instance, credit card interest on money borrowed on the credit card to go to the theatre would certainly not be allowable.

          What would certainly be acceptable would be to borrow against the value of the rental property (but remember, as you will be using it yourself there is an element of restriction of interest deductibility), and use that cash to pay down the mortgage on your house.

          Silly isn't it. Clearly in OP's case the boundaries are blurred.


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