My wife and I bought a house, lived there and, over time, I managed to pay off the mortgage. We then moved to a bigger house, but I was unable to secure enough funds for the second house by re-mortgaging the first house. I therefore took out a five-year fixed rate mortgage on the second house. I then rented out the first house. My question is whether the interest for the new mortgage is a valid expense for tax purposes? Is it possible, for example, to look at the two houses as part of a rental business?

Arthur Weller replies:
Unfortunately, you cannot offset the mortgage interest on the new, second house against your rental income from the old, first house. The mortgage on the second house is looked upon as a personal expense (because, like everyone else, you need somewhere to live), unrelated to your rental business.