Buy to let mortgage interest tax relief

This description is a little unclear. Do you mean you increased the loan secured against your existing home by £80k in order to use this sum (possibly plus some savings) to buy the letting property?

If so, then in effect you borrowed £80k to buy the letting property, and ...

... therefore only £80k worth of the total £160k loan has a business purpose, and therefore only interest on £80k in all can be deducted from rental income for the purpose of computing taxable rental profits.

Yes, that means each of you can deduct half the interest on £80k (or all the interest on £40k) from your respective half of the rental income, assuming your loan liability and property equity stakes are both split on a 50-50 basis.

Think about it. Suppose you had increased the £80k loan just to £90k, and used the £10k to buy a car with which you plan to run a taxi business. Would you expect to set the whole £90k worth of loan interest against taxi fare income? Of course not, only £10k worth. Same here.

Sorry it's unclear. The property is the same, i.e currently owned by me with an 80K mortgage. The intention is to release the capital in the property, and then let it - with my wife being added to the new

I take the point about the taxi business, but from my wife's perspective there isn't an existing loan.

Thanks for the quick reply.

The "old school" interpretation in that case would say that the purpose of the new loan is to fund purchase of the new private home, which is not a business purpose and therefore would not qualify for relief.

The "new school" interpretation of which Tim keeps reminding us would view this as the new loan helping to transfer the property into the rental business. The whole loan would therefore qualify for relief. This would seem to be the definitive position now.

What I'd like to know is whether there has been a change in the rules, or whether the rules have always been like Tim says but have hitherto always been wrongly interpreted.

In both cases the fact that your wife was not in on the original loan is immaterial, the point being that the original loan funded the purchase of the property to be let, and is therefore allowable. You could still split it between yourselves as you saw fit. You can also split the new loan as you like.

I've found the thread relating to this now. Seems to me that the IR are just as confused about this as I am.

IR150 Published March 1999 supports the 'old school' intrepretation, whereas BIM (internet published date October 2003) supports the new intrepretation.

Thanks for the replies though - you have cleared somethings up for me.

There's been some in-depth posts on TMF which may enable you to see the history. In chronological order -

hth

Daytona