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Remortgaging a property after having bought it with cash

Question There is one issue I've not been able to get a clear answer to. I consulted a few accountants on this and still did not get a satisfactory answer.

If I purchase a property cash, and then get a mortgage on it in the next few months, can I still offset the interest on that mortgage against the tax?

Arthur Says
In my opinion, the mortgage interest is allowable in this particular scenario. This is because the property was bought with the intention to take out the mortgage soon afterwards.

In this scenario it appears as though the purchaser only paid cash originally because this was a better way to execute the purchase. For example, sometimes investors need to move quickly and applying for a mortgage can take several weeks.

Because it was always the intention to fund the property business by means of the mortgage, it will be possible to offset the interest.

Case Study
John has inherited £100,000 from his father's estate.

He is presented with the opportunity to purchase a property at £100,000, but he must complete within two weeks. By purchasing within two weeks, he will save £25,000 off the original asking price of £125,000.

John knows that it will take too long to apply for a buy-to-let, mortgage so he pays for the property with cash.

Two months later, he remortgages the property using a standard buy-to-let mortgage.

In this scenario, John can offset the interest on the remortgage, as it was always his intention to fund the investment by a mortgage.

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