Letting property is a serious business and the Inland Revenue respect that. If you borrow money to buy a property, or to renovate one, or even to fund expenses such as repairs or legal fees, the interest on the borrowings can be deducted from the income generated by the property. What’s more, the money can be borrowed as a personal loan, a mortgage, or even an overdraft, as long as the capital is used to fund the letting business in some way.

You may be confused about when mortgage interest can be set against the rents received. Before 6 April 2000 limited tax relief was available on a loan taken out to buy the property you lived in. Strictly if that loan was used for another purpose the tax relief would be lost. Since 2000 there are no restrictions. If you extend the mortgage on your own home to release funds to buy or repair a let property you can offset the interest on the extended portion of the mortgage against the rents received from the let property.

However, you do need to be able to prove to the Tax Inspector which lump of borrowed money is used to fund either the let property, your own home, or another purpose. The best way to make things clear is to draw up a simple balance sheet that shows exactly how much capital has been invested in the letting business. We can help you with that.