Home loan on main residence used as a deposit for BTL

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    Home loan on main residence used as a deposit for BTL

    More than a year ago, I raised £50k against my home in order to act as deposit for a potential BTL purchase. I did not manage to find a BTL opportunity until now. Meanwhile, the money was in a savings account. Over the course of the year, I spent about £5k of the money on a second-hand car but also replenished the missing money through salary.

    It appears that interest can be deducted regardless of the source of funding, as long as the proceeds are used for the BTL business.

    I will now be putting a 25% deposit on the BTL purchase, and this is only possible because I took the a loan against my home a year ago. Is it ok to deduct the interest and what documents should I expect to produce if I get asked to prove that the home loan proceeds were used exclusively as deposit for the BTL purchase ?

    #2
    Originally posted by marplasto View Post
    Is it ok to deduct the interest and what documents should I expect to produce if I get asked to prove that the home loan proceeds were used exclusively as deposit for the BTL purchase ?
    I've done this myself; I put the whole thing through my accountant who worked out the numbers, and said it was OK. I've never been challenged on it by HMRC - all they've ever seen is the top-line information with my tax return and don't actually know the source of my mortgage interest; ie I can't confirm that HMRC have seen and approved the concept.

    As regards proof for HMRC - I suppose all you can do is keep all the info you can to show your intent. Personally, I deliberately withdrew a sum (not a round figure) more-or-less matching the purchase price plus costs, and I did so not long before I made the purchase; I also have correspondence on file dated before that with my accountant asking "What if..."; so hopefully that will all cover me.

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      #3
      You'll need to be careful to be able to prove you took out the mortgage to buy a property for your business.
      The purchase of something else with it and the length of time indicates that this wasn't the actual purpose of the loan (or all of it).

      You might find the small amount of information available to HMRC doesn't trigger any further investigation, but it would be possible.
      The backdated interest is not claimable until the property is brought into the business, which hasn't happened yet.

      I'd suspect any accountant would tell you to go ahead and claim it.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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        #4
        I did this too. Whilst the money is earning interest in your savings account you must declare that income. Also when you offset the money you use for deposit - you can also offset interest representing the amount of money used for bringing the property up to standard and I believe purchasing costs too.

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