Readers' forum : Forgotten purpose

HMRC has opened an enquiry into the personal self-assessment tax return of one of our clients. Many years ago the client loaned funds to a trading company. These were obtained by increasing the mortgage on the taxpayer’s home at that time. Some years after the funds were borrowed and the loan made to the company the taxpayer moved house and took out a new mortgage to purchase the new property.

HMRC is now arguing that the whole purpose of the new loan was to purchase the new house. Consequently the department is saying that tax relief on the mortgage interest from the date of the new borrowing is no longer allowable.

My thoughts are that HMRC is wrong here but I can’t quite work out the statutory basis and the argument to rebut the department. Can Taxation readers provide any assistance?

Query 18 994– Borrower.

...