I have just bought a new property, with the intention of letting it out. It is my first purchase, and I bought it using a residential mortgage (and a 10% deposit from cash savings). Since I am in the military, I have been granted consent to let and have an assured shorthold tenancy in place soon. I intend to remortgage onto a buy-to-let, but until then, can I claim 20% tax relief on the mortgage interest, as it is a residential mortgage but is being used for business purposes? 

Arthur Weller replies:  

You can claim 20% tax relief on the mortgage interest because this is a residential property which is being rented out. See HMRC’s Property Income Manual at PIM2054, where it talks about ‘Interest and other finance costs on loans taken out for a property business which involves the letting of residential properties.’ The rules apply to what the legislation terms a ‘dwelling-related loan’. This means any amount borrowed for the purposes of a property business to the extent to which both of the following apply; the business must consist of receiving rental income from a dwelling house, and the loan amount must be used for that part of the business. ‘Dwelling-house’ has its normal dictionary meaning in this context and can include part of a dwelling house as well as the land and gardens attached to the house.