News: Press Releases:
Tax relief on mortgage interest returns by the back door

23 February 2005

Tax relief on mortgage interest may have been abolished long ago, but many homeowners can gain unexpected tax relief for interest on property borrowings a London firm of chartered accountants has pointed out.

" Many home owners who move house are not aware that they can gain tax relief if they keep their original property as a buy -to -let investment," said Steven Bruck, a senior partner at Blick Rothenberg, " and with sensible planning the relief can be far bigger than might be expected and is all allowable by the Inland Revenue.

Bruck added: " Let's assume that an owner occupied property originally cost £150,000 and £120,000 was originally borrowed for this purchase. The owner now wants to move, but plans to hold onto this property (which is now worth £250,000) as a "buy-to-let" investment. Consequently he will have to borrow £130,000 more on the new property to make up for his unrealised equity in the old Property.

" Now comes the unexpected relief; his old property which is now worth £250,000 becomes a property investment which he proposes to let out. Interest on the original £120,000 of borrowings plus a further £130,000 (borrowed to enable him to withdraw his equity in the property) can all be treated as an allowable expense for tax purposes, to set off against his rental income. There are some formalities to be fulfilled with the lenders but properly organised this can mean that interest on the whole £250,000 of borrowing will be eligible for tax relief.

"The good thing is that this favourable tax treatment of interest on borrowings has been spelled out in the Inland Revenue's own manuals, which are available to the public, as a result of technical changes in the 2004 budget but they have never been publicised."

He added: " What this means in practice is that it is much easier for homeowners to keep their old properties as an investment for the long term, whilst moving to a new home."

For more information, or to set up an interview, please call David Barzilay +44 (0)20 7544 8980, Lizzie Jordan +44 (0)20 7544 8827 or Steven Bruck +44 (0)20 7544 8970

EDITOR'S NOTE:
Blick Rothenberg's client base includes a wide range of private sector companies in a variety of industries as well as professional firms and charities. This breadth of clientele means that they have practical experience of all accountancy issues ranging from UK tax and audits to acquisitions, disposals of businesses and international taxation. They also provide all-round taxation, accountancy and other financial services to their personal client portfolio.
Blick Rothenberg is authorised & regulated by the Financial Services Authority to carry on investment business.