I am the landlord of a flat owned outright. I need to raise some capital. If I get a buy-to-let mortgage on this flat, will the mortgage interest payments be tax-deductible on the rental income? Or will HMRC not like it, since I previously owned the flat outright, and I am obviously therefore using the mortgage to raise capital and not actually to buy it? 

Arthur Weller replies:  

The mortgage interest payments will be tax-deductible on the rental income (under ITTOIA 2005, ss 274A-274AA). You are entitled to withdraw capital from your rental business. BIM45700 Example 2. However, if the loan that you are getting now exceeds the value of the property when you started to rent it out (i.e., the starting capital of the rental business), then the excess interest cannot be deducted from the rental income. For example, if the value of the property when you started to rent it out was £200,000, but now the property is worth £350,000, and you succeed in getting a loan for £250,000, then 80% of the interest will be allowable (corresponding to the £200,000), but 20% of the interest (corresponding to the £50,000) will not be allowable.