Deduction of interest against property income ― income tax rules

Produced by Tolley
Deduction of interest against property income ― income tax rules

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Deduction of interest against property income ― income tax rules
  • Interest costs for income tax purposes
  • Restriction on interest costs

Interest costs for income tax purposes

An area that commonly raises questions regarding its deductibility against rental income is interest (often the single biggest cost for a landlord).

The rules are different for income tax and for corporation tax. For corporation tax rules, see the Deduction of interest against property income ― corporation tax rules guidance note.

Prior to 2017/18 (see below), interest was treated as a revenue expense, whatever the nature of the loan. The incidental costs of obtaining loan finance are specifically allowed as revenue costs.

For income tax purposes, the principle is that interest payable on a loan to buy land or buildings used in the property business, or on loans to fund repairs, improvements or alterations, is an allowable expense. Overdraft interest, interest under hire purchase agreements, etc, is also deductible provided the capital funds are used in the rental business. This is still the case after 5 April 2017; it is just that the method of relieving the expenses has changed.

HMRC accepts that the same principles apply as for any other trade or busines

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