Can I Offset Mortgage Interest Against Rental Income?

I am just starting to delve into buy to let property and am in the process of buying a property to rent out. The property is £90,000.  As I have an offset mortgage on my private house, which is almost paid off, I can raise the £90,000 from there at an interest rate of 1.45%. For tax purposes, would it be wise to have a mortgage, buy to let (interest only,) or to use my £90,000 at 1.45%? Will I be allowed to raise money from my offset mortgage for the purpose of buy to let and if so can I use the interest rate (1.45%) against my final tax bill?

Arthur Weller Replies:

For the purpose of buying your buy to let property you should look for the mortgage that is best for you commercially because from a tax perspective it makes no difference. Whichever one you choose, the interest payable will be an allowable expense if the purpose of the loan is wholly and exclusively to enable you to buy the property. This can be seen in the HMRC Business Income Manual at pages BIM45685 and BIM45695:

• http://www.hmrc.gov.uk/manuals/bimmanual/bim45685.htm

• http://www.hmrc.gov.uk/manuals/bimmanual/bim45695.htm