Interest Allowable on Investment property

In the tax year 2012 I was unable to pay the interest in full on my investment property loans. I still owe the arrears to the bank. In calculating my profit on rental income for the is it the full interest billed by the bank or just the amount paid that should be deducted ?

This is a question that has come up a lot in the office. Our take on it is that interest is allowed on an incurred basis so if you incur the expense then it's allowable.

There has been developments in relation to the allow ability of unpaid interest in the trade in property but I don't think the Dept of finance have done anything in relation to rental.

Obviously you only get 75% for residential property.

Really appreciate your reply. I am sure it is an issue which will arise alot over the next few years as more and more 'Buy to Let' investors fall behind in the payments.