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Should I Pay Cash Or Get a Mortgage to Purchase Buy to Let Property?

Question I have a quick question regarding the deduction of mortgage interest from tax on the rental income generated from a buy to let. Basically, I was wondering, if I bought a property in cash and then got a mortgage on it almost immediately, would this be acceptable for tax deduction (as opposed to buying it with a mortgage in place)?
The reason being twofold: firstly, I think that the mortgage lender is keener for me to do this, and secondly, I am afraid I will lose out on the property if I don’t move quickly.
I want the other cash to purchase another property. I am in the somewhat luxurious position of being cash rich but with no income. This makes mortgages somewhat of a problem, despite the fact that I have the cash to buy outright with plenty to spare. The point of the exercise would be to give me an income (the rent covers the mortgage interest and plenty spare).


Arthur Weller Replies:
If you look in the July 2010 edition of 'How To Avoid Landlord Taxes' section 6.5 on page 40 you can see a full answer to this question. In short, I believe that the interest payments are allowable, one reason being because you use cash in order to be able to purchase the property quickly, and if you do not use cash you possibly may not be able to make the purchase, and your intention all along is to substitute a mortgage soon afterwards, and the cash is merely in place of a bridging loan.

Property Tax Insider This sample question and answer is taken from Property Tax Insider, a monthly UK tax saving magazine for landlords and property investors.

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