Can interest incurred in financing a development be allowed against the subsequent letting income?

View All Questions View Questions From:

Can interest incurred in financing a development be allowed against the subsequent letting income?

Question
We are planning to build and let, we expect the development loan will be paid off with a buy to let mortgage once the development is finished.

Can interest incurred in financing the development be carried forward and allowed against the subsequent letting income?

Arthur Says:

The answer to this question is YES, the interest relief is allowable. Here is an extract from IR 150, which throws more light onto the matter:

Interest payable on rental business loans

183. Interest payable on loans used to buy land or property which is used in your rental business, or on loans to fund repairs, improvements or alterations, is deductible in computing the profits or losses of your rental business in the same way as other expenses.

Relevant to this scenario, it is worth quoting a bit more from IR 150:

Expenses incurred before rental business begins

307. You may incur expenses for the purposes of a rental business before that business starts. If so, you may be able to claim a deduction for them once the letting begins. Relief is only due under these special rules where the expenditure:

  • is incurred within a period of seven years before the date you start your rental business; and
  • is not otherwise allowable as a deduction for tax purposes; and
  • would have been allowed as a deduction if it had been incurred after you started your rental business.

(Section 401 ICTA 1988)

310.Qualifying pre-commencement expenditure is treated as incurred on the day on which you first carry on your rental business. This is deducted, together with the other allowable expenses of letting, from the total receipts of the business for that year.

About Arthur Weller

Over 350 consultations successfully completed by Arthur though this site!
Arthur Weller is a Chartered Tax Advisor (CTA) and an integral part of the Property Tax Portal team. He offers a special rate tax advisory service on any aspect of UK taxation, including property taxation, for as little as £97 for a 30 minute telephone tax consultation.

Key Facts:

- Over 90% of queries are answered within 30 minutes and within 3 days!
- Over 300 consultations done by Arthur through this website!
- You pay for the advice after it has been given

Here is what one of our customers had to say:

“Arthur contacted me the next day.  He phoned promptly and offered me clear and concise advice which he referenced to the HMRC website, taking me through section by section and explaining the implications each step of the way. 

He also sent me an MP3 recording of the session so that I was able to absorb the information more fully.  I am extremely impressed by his professionalism. Money very well invested as his advice will save me thousands of pounds.  I wholeheartedly recommend his services.

Thank you very much.” V. Loughery


To learn more about this service click here.

Ask a Question