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Plunging prices?

17 December 2008
Issue: 4187 / Categories: Forum & Feedback , Income Tax
A client borrows money against the value of a property used for lettings, but what is the effect of falling property prices on the allowability of the interest paid?

Some years ago Mr A purchased a city centre flat for £200 000. He used a £100 000 legacy as a deposit raising the balance by mortgage. The property was his main residence for a year or so but he then became a ‘buy to letter’.

I explained that the interest on a loan for a let property could be set against rental income so he remortgaged the flat for £200 000 (it then being supposedly worth about £250 000) and used that £100 000 as a deposit on a new main residence and let the flat.

On a good day the flat may now be worth about £150 000 and falling rents mean he is making a loss each month. My worry is whether I am still correct in claiming the interest on the full loan or should this be restricted to reflect...

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