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?
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:
(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.
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