Mortgage redemption

Karl a UK resident individual owns two buy-to-let properties. He has fixed term mortgages on both. These were taken out some years ago when interest rates were higher than at present. He is selling one of the properties at a substantial capital gain so will have to repay the mortgage on that property early.

He would also like to use part of the sale proceeds to repay the mortgage on the other property which he will continue to let.

When Karl repays the mortgages he will need to pay the bank an early redemption penalty. This is calculated as the difference between the interest he would have paid over the remainder of the fixed-term period less a notional return the bank would receive if it invested the funds.

Can Karl claim tax relief for the penalties? HMRC’s Business Income Manual paragraph BIM45820 states that early...