This Practice Note covers the extent to which interest expenditure is Deductible for income tax payers and corporation tax payers investing in UK real estate. The tax treatment of interest payments for dealers in UK real estate is outside the scope of this Practice Note.

A typical real estate investment involves a taxpayer acquiring property with a view to holding it for a relatively prolonged period of time and earning income from renting out the property to tenants. Where, for example, property is acquired for re-development with a view to selling it at a profit, this is likely to amount to trading (or dealing) in real estate rather than investment. For more details, see Practice Note: Dealing in property or property investment?

As a general rule, interest expenditure on debt to finance a UK property business is only deductible (if at all) in computing income Profits (ie profits derived from rental income) and is not deductible in computing a capital gain upon disposal of property.

The deductibility of interest payments depends upon the tax profile