Re-mortgage back to original borrowing.

[ChrisM]

I have owned a BTL flat on a repayment mortgage for many years and over the time I have paid off lump sums of the mortgage as the interest rate was higher than savings in the bank, but now I would like to use some of this for my own place.
If I re-mortgage on interest only back to the original borrowing amount .I believed that I still could off set the interest against the income, But my accountant is saying that is not correct If a BTL property gets paid off no interest can be claimed against that property again. Could someone please clarify the situation?

[cfaproperty]

Not a tax expert but I think it would be dependent on the purpose of redrawing the funds, for example a further property purchase or improvements may be OK, drawing the money so you can go on a cruise probably not. This might be better served in the taxation forum and will propbably be switched across later.

[ChrisM]

thanks David, I'm new to this site and realised I had put my question in the wrong area.

[Phlash]

Going on a cruise or using the money to bet red in the casino, doesn't matter. You are simply withdrawing capital from the lettings business. The size of your 'capital account' in the lettings business depends on the market value of the properties when they were brought into use in the lettings business.

The purpose of redrawing the funds doesn't matter. Your accountant does not sound too hot on his/her tax, this is basic property tax planning. Cfaproperty is thinking in old school terms, and it is a common misconception on current tax treatment.

Point your accountant towards BIM45700. You should also be able to understand it after having a couple of read throughs. As long as your 'capital account' is not overdrawn then you are fine, and you can use the funds for whatever you like. This is a common tax planning idea used to decrease the amount borrowed against a private home. If the BTL interest rate after tax is less than you personal mortgage rate then it is worth contemplating, and I say contemplating because you need to take into account the costs of a BTL mortgage and switching etc.

(This assumes you have no other BTL with borrowings, if so, then you need to look at your 'capital account' from a global perspective taking into account the capital value introduced to your lettings business at the start of your lettings business, and the current borrowings for which tax relief is claimed.)