Serious landlords are always looking for deals, especially in the current market
When one comes their way, it is sometimes not feasible to apply for finance. This is because the administration and paperwork will take too long, and this is likely to result in the investor losing out on the deal.
In such scenarios the landlord will end up buying the property using their cash reserves, and they will then re-mortgage the property to release the invested funds.
The question then arises as to whether the interest charged on the re-mortgage is tax deductible.
In Arthur Weller’s opinion, the mortgage interest is tax deductible in such scenarios. This is because the property was bought with the intention to take out the mortgage soon afterward.
John has inherited £100,000 from his father’s estate.
He is presented with the opportunity to purchase a property at £100,000, but he must complete the purchase within two weeks. By purchasing within two weeks, he will save £25,000 off the original asking price of £125,000.
John knows that it will take too long to apply for a BTL mortgage, so he pays for the property in cash.
Two months later, he re-mortgages the property using a standard BTL mortgage.
In this scenario, John can offset the interest on the re-mortgage as it was always his intention to fund the investment by a mortgage.
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