Many property people miss out on claiming back loan interest and other fees tied up with borrowing money.

Most landlords know they can set off mortgage interest as a property business expense - but don’t realise the tax man will allow them a lot more.

The same rules apply to claiming interest as any other business expense:

1. The expense must be ‘wholly and exclusively’ for the business or part of the expense should be identifiable as a business expense for apportionment.

Apportionment is allocating the right percentage of the expense to the business. For instance, if you borrowed £100 and spent £50 on paint for decorating an investment property, that £50 and any interest on the borrowed money can be set off as a business cost.

2. The expense must not be a capital expense, which means any interest on borrowed money can only be on day-to-day property business expenses like redecoration and repairs.

For property developers, the rules are different - you must still follow the wholly and exclusively rules, but interest paid on loans for buying and developing a property should be held on your balance sheet as ‘work in progress’ in the stock category until the property is sold.

When the sale completes, the interest is then moved to the profit and loss account as a cost of sale.

Now, let’s look at some of the more confusing loan and interest rules that often provoke questions on forums.

Loan security

It doesn’t matter whether the money is borrowed on a credit card, mortgage or other type of loan or whether the loan is secured against property or not, providing you can show the money the interest is charged on was spent as part of your property business.

Mortgage and loan fees

Loan fees, commissions, guarantee fees and fees in connection with the security of a loan can be claimed as a business expense providing they relate to either:

A property let on commercial terms

or

A development property

Mortgage cash backs

Cash backs are not business income but tax-free payments unless they are paid over a period - like an annual reward - where they may be subject to income tax.

Charging your property business interest

Many people ask whether they can charge interest on cash they have put in to their business to buy or refurbish property.

You can - but it must be at commercial rates and you must show the interest you receive on your tax return.