Tax and loan on a failed B2L purchase

[Aris]

Hi all,
I would appreciate any opinions on the following tax-related situation.
I was in the process of purchasing a B2L flat. At the same time I was re-mortgaging my main residence so I released an additional 20K equity to help fund the B2L purchase. The rest of the necessary funds would have been raised by a B2L mortgage that I had also started applying for. Re-mortgage completed and got the 20K. However, the B2L deal collapsed in midway because of dodgy paperwork. At the time I was receiving rental income from another B2L flat which had a mortgage and only 5K equity in it.
A few questions from a tax perspective:
1) Would I be able to offset rental income tax with interest paid on the whole 20K as the 20K was "wholy and exclusively" raised to support the B2L purchase, which purchase however was not fulfilled?
2) The 20K is borrowed with a 3-year tie-in. On an affirmative answer to 1, would the interest on the 20K offset rental income tax every year for all 3 years?
3) Would costs (solicitors, etc) of the collapsed deal, around £400, offset rental income tax? (these are capital expenses but as finally the flat wasnot bought in order to be sold and offset these costs in the future from CGT, could the costs now offset rental income tax?)
Many thanks for any feedback.
Aris

[Tax Accountant]

Hi all,

I would appreciate any opinions on the following tax-related situation.
I was in the process of purchasing a B2L flat.

At the same time I was re-mortgaging my main residence so I released an additional 20K equity to help fund the B2L purchase.

The rest of the necessary funds would have been raised by a B2L mortgage that I had also started applying for.

Re-mortgage completed and got the 20K. However, the B2L deal collapsed in midway because of dodgy paperwork. At the time I was receiving rental income from another B2L flat which had a mortgage and only 5K equity in it.

A few questions from a tax perspective:

1) Would I be able to offset rental income tax with interest paid on the whole 20K as the 20K was "wholy and exclusively" raised to support the B2L purchase, which purchase however was not fulfilled?

ANSWER: On the face of it, yes, so long as you have not used the monies for a private purpose and you can demonstrate that the monies were indeed for the proposed BTL.

2) The 20K is borrowed with a 3-year tie-in. On an affirmative answer to 1, would the interest on the 20K offset rental income tax every year for all 3 years?

ANSWER: see (1) above

3) Would costs (solicitors, etc) of the collapsed deal, around £400, offset rental income tax? (these are capital expenses but as finally the flat wasnot bought in order to be sold and offset these costs in the future from CGT, could the costs now offset rental income tax?)

ANSWER: I think this is still capital expenditure, albeit abortive expense of the collapsed deal. If you do claim this, ensure to make a note of this in the ''additional information'' box on the self-assessment tax return.

Many thanks for any feedback.

Aris

See replies above.

Ramnik

[Aris]

Ramnik,

I appreciate your input very much. Thanks!

Aris

[Tax Accountant]

Ramnik,

I appreciate your input very much. Thanks!

Aris

My pleasure.

Ramnik