I had extremely high equity in my first home, enough to split it up, leave one-quarter behind, and use three-quarters to buy a new family home. That original property was then mortgaged as a buy-to-let (BTL), and I claim the tax relief on the BTL mortgage interest as usual. I have read on several investors’ blogs that the one-quarter that I did not carry into my new home can also be claimed as a cost of personal finance for the BTL. For example: BTL valued at £160,000; mortgage agreed for £120,000 @ 4%; home valued at £200,000 – mortgage for £80.000 @ 2%. Instead, I could have put that £40,000 BTL equity into my own home and had lower interest. Can I claim 2% of the £40,000 interest? I assume I should claim for the reducing balance, as I am of course repaying capital on that £40,000. The balance reduces at approximately 3% per year.
Arthur Weller replies:
I am sorry, but I do not understand why you should be able to claim interest relief (of course, according to the new rules from April 2017 onwards) for interest that you could potentially have been paying but are not actually paying. In my experience, there is no such thing. Either the taxpayer has the responsibility or liability to pay the interest, or they do not.