Mortgage Interest

[billion]

I am self-employed (not in housing) but work from home.

If I have savings of £100,000 and want to purchase a house of £100,000..
but choose to get a mortgage at a fixed rate for 10 years.

But my savings into a bank account and get interest on them and hope the interest rates go up.

Could I write off the interest on the mortgage off as an expense (even though I can afford to buy the property in cash) every year?

[Tax Accountant]

I am self-employed (not in housing) but work from home.

If I have savings of £100,000 and want to purchase a house of £100,000..
but choose to get a mortgage at a fixed rate for 10 years.

But my savings into a bank account and get interest on them and hope the interest rates go up.

Could I write off the interest on the mortgage off as an expense (even though I can afford to buy the property in cash) every year?

You are asking whether you can claim the mortgage interest as an expense against your self-employment income on the basis that you work from home.

You not only work from home but you also live in your home. Therefore, the interest needs to be apportioned between the business use of your home and the private use of your home. I would imagine that the interest apportionment relating to the business use of the home would be relatively little.

In particular, you want to be careful in claiming a large proportion of your home as your workplace because you may then incur CGT on that proportion upon the sale of your home in due course.

On the face of it, it does not make sense to do as you propose, especially bearing in mind that you will be taxed on the interest you receive on your savings balance.

You may wish to consider taking an offset mortgage whereby you will be charged interest only on the difference between your mortgage and the savings balance.

Ramnik

PS
Just to clarify the third paragraph from the end regarding CGT. A room has to be used exclusively for business purposes for it to be excluded from CGT exemption. Therefore, even if a business is carried from home, it is always wise to ensure that there isn't any room which is designated exclusively for business use.

Ramnik

[Raggy]

I think that you might have mis-read the question, Ramnik, it could be that billion is asking about the purchase of a new property for the purposes of starting a letting business.

If that is the case, billion, then yes the interest on the loan would count as an acceptable expense for your lettings business.

[Tax Accountant]

I think that you might have mis-read the question, Ramnik, it could be that billion is asking about the purchase of a new property for the purposes of starting a letting business.

If that is the case, billion, then yes the interest on the loan would count as an acceptable expense for your lettings business.

Yes Raggy, it appears that I misread the question. I got confused by the querist's opening paragraph and assumed that he was thinking of buying a house to live in himself and also to carry on his self-employed business from home.

And yes, you are right. The interest on BTL mortgage is always allowable against the lettings income.

Ramnik

[pfidelus]

Interest payments on your mortgage are allowance and can be offset against your income tax. This does not relate to capital rapayments but only interest mortgage.

[Tax Accountant]

Interest payments on your mortgage are allowance and can be offset against your income tax. This does not relate to capital rapayments but only interest mortgage.

Strictly speaking, interest is offset against rental income and not against income tax.

Ramnik