If you own a Buy to Let property as an individual rather than in a limited company it is worth maximising your borrowings against the Buy to Let because the interest will be a tax deductible expense.

It doesn’t matter how you borrow:

• Mortgage on the Buy to Let
• Personal Loan
• Overdraft
• Re-mortgage of your main residence to invest in your Buy to Let

The rules allowing this are covered in http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm

So, for example, if you had a Buy to Let property with low borrowings against it and a mortgage on your main private residence, you could increase your borrowings on the Buy to Let and pay off your private residence mortgage.

But you need to be aware that the maximum you can borrow on the Buy to Let is the market value when it was first let.

Here is an example from Tax Cafe – How to save property tax

Property investors are often unsure whether their interest is deductible. This depends on how the money is used. Use it to buy investment property and the interest is tax deductible. Use it for personal reasons and the interest is not deductible.

There is an exception to this rule: you can generally remortgage an investment property up to its original purchase price and the interest will be tax deductible, whatever you use the money for. For example, let’s say you bought a buy-to-let for £100,000 and the current mortgage is £60,000. You can borrow up to another £40,000 (if the bank will let you!) and all the interest will be tax deductible, no matter how you use it.

You will need to keep detailed records of the borrowing and interest for your tax returns.

Alternatively you might focus on paying off your main residence mortgage first to leave the borrowings high on the Buy to Let.

steve@bicknells.net