How is mortgage interest treated in a property company’s tax?
Last checked against the sources on
HMRC’s Property Income Manual says that for a company, interest is deductible under the loan relationship regime, and that, unlike for income tax, interest is not an expense in computing the property business profits. So mortgage interest matters to a company’s tax, but it is dealt with through a different set of rules from the rental costs.
What HMRC says
The manual page headed “Property businesses subject to Corporation Tax” says interest is deductible under the loan relationship regime and that interest is not an expense in computing the property business profits, as it is for income tax. It sends readers to HMRC’s Corporate Finance Manual (CFM32100) for the detail.
Why it matters in practice
A mortgage payment from the bank statement usually mixes two things: interest, which is a cost of borrowing, and repayment of the loan itself, which is not a cost at all. The accounts and the tax need them split. On an interest-only mortgage the payment is interest. On a repayment mortgage the lender’s annual statement gives the interest figure for the year, and the rest of the payments reduce the loan.
How SPV Accounts helps
SPV Accounts asks for the lender’s annual interest figure on a repayment mortgage, counts that as interest, and treats the remainder of the payments as reducing the mortgage.
Sources
General information checked against GOV.UK, not personal advice.