I have several buy-to-let properties. I purchased most of them in cash, with no mortgage. I decided to release funds from one of them and mortgaged it, releasing 75% value. That was several years ago, and I assumed my interest payments were deductible. But it has just been explained to me by my accountant that they are not deductible because I gave him the reason for me doing it as "releasing funds to live on". Is that right? It seems strange that I can't deduct interest payments for that reason – I still have the mortgage. 

Arthur Weller replies:  

See HMRC’s Business Income Manual at BIM45700, Example 2, where you can see that the taxpayer borrowed money for personal (i.e., non-property business) use, and the interest was still allowed as an allowable expense. However, the important thing is that the loan is not more than the value of the property when it first began to be rented out. If the loan is more than the value of the property when it started to be rented out, the interest relief is restricted. For example, the original value of a property when it started to be rented out was £200K. Then, sometime later, when it was worth £300K, the owner obtains a 75% mortgage for £225K. Only 200/225 (or 8/9) of the interest payments are eligible for tax relief.