Why is a remortgage on a Buy to Let not allowed for tax purposes?

NoRegretsCoyote

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And contrary to what some people think, you will not be getting any tax relief on the interest. Although it might be secured on the buy to let, the purpose was not for the purchase of the buy to let, so the interest can't be set off against the rent for tax purposes.

Brendan
Is there Revenue guidance on this?

It seems a bit strange that there would be no tax relief here, but there would be if the OP sold the house and bought the one next door with a mortgage.
 

Sarenco

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If you think about it, why would interest on a loan that is used to fund education expenses be deductible in calculating rental profit?

After all, it's not an expense that's incurred for the purposes of the rental property business.
 

NoRegretsCoyote

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W
If you think about it, why would interest on a loan that is used to fund education expenses be deductible in calculating rental profit?

After all, it's not an expense that's incurred for the purposes of the rental property business.
I think like an economist and interest isn't really an expense like fixing a toilet is. Interest is the cost of finance.

Accountants tend to think of them as similar but they are conceptually different. Hence my example above of how it may be more profitable to sell and buy the house next door to take advantage of tax relief. This is economically pointless and only makes sense to take advantage of tax rules.

Full, or high, interest deductability encourages over leverage but I've already strayed too far OT.
 

Sarenco

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Interest is the cost of finance.
Sure but it's only the cost of finance (aka interest) relating to the purchase, improvement or repair of a rental property that's deductible in calculating taxable rental profit.

You can't deduct the cost of finance relating to the purchase, improvement or repair of something else (your car, for example) in calculating taxable rental profit.
 

NoRegretsCoyote

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Can you be sure that Revenue would agree with this? I'd have my doubts.
Seems compliant with Revenue guidance.

Sure but it's only the cost of finance (aka interest) relating to the purchase, improvement or repair of a rental property that's deductible in calculating taxable rental profit.

You can't deduct the cost of finance relating to the purchase, improvement or repair of something else (your car, for example) in calculating taxable rental profit.
I could understand your logic if only mortgage interest on new builds was deductible. But it's not.

A house can be owned by a succession of landlords and all can take advantage of tax relief on interest over and over.
 

Zenith63

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If you own a business you can take out loans which free up cash in the business, allowing you to then pay out more to yourself - is there a reason rental properties shouldn’t be treated the same way? Ie. If you feel your little rental business can sustain the interest of a larger loan, then you should be able to take it out, treat the interest as an expense and do what you want with the freed up cash?
 

Sarenco

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I could understand your logic if only mortgage interest on new builds was deductible. But it's not.
I don’t follow.

Interest on a loan used to purchase a new build rental property is deductible in calculating rental profit - why do you think otherwise?
 
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Sarenco

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Mortgage interest is deductible once again for the same house once another landlord has purchased it.
Oh course - it's a different business owner/taxpayer!

The point is that the interest cost must relate to the rental property business. The interest on a mortgage secured on a completely unrelated property (e.g. a PPR) will still be deductible if the loan was used to purchase, improve or repair a rental property.
 

Sarenco

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Yes but If a house lasts a hundred years the cost of building could be claimed many times over in interest payment deductability.
You are still focusing on the asset and not the business.

All businesses deduct financing costs in calculating their taxable profit. The property rental business is no different.
 

Bronte

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Yes but it's the same house!

If a house lasts a hundred years the cost of building could be claimed many times over in interest payment deductability.
How about you think about this as if it were a shop or restaurant. And then work out your logic.
 

NoRegretsCoyote

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You are still focusing on the asset and not the business.

All businesses deduct financing costs in calculating their taxable profit. The property rental business is no different.
So why shouldn't I be able to re-mortgage the property and use the interest against tax?
 
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