Is the interest on a BTL revolving credit facility tax deductible?

Is the interest on a BTL revolving credit facility tax deductible?

For UK property investors, managing cash flow while navigating the complex tax landscape is a major challenge. When looking for flexible financing, many landlords are turning to a Buy-to-Let (BTL) revolving credit facility. This unique financial product acts like a secured property overdraft, allowing you to draw funds, repay them, and draw them again as needed. However, before setting up such a facility, it is vital to understand how the tax authorities treat the interest you pay on drawn funds.

The short answer is that the tax deductibility of interest on a BTL revolving credit facility depends entirely on how your property portfolio is structured. Here, we break down how the tax rules apply to individual landlords compared to limited companies, and how you can use this flexible product to grow your business.

What is a BTL revolving credit facility?

Before diving into the tax implications, it is important to understand what this product is. A BTL revolving credit facility is a secured financial product. It is not an unsecured business loan, a generic credit card, or a standard business line of credit. Instead, it is secured as a second charge against a residential buy-to-let property, sitting safely behind your existing first-charge BTL mortgage.

Once the facility is arranged, you can typically draw down funds within 24 to 48 hours. This makes it an incredibly fast and flexible alternative to bridging finance or remortgaging to release equity. Landlords commonly use these funds for several urgent or strategic property needs, such as:

• Securing quick auction deposits.
• Funding property renovations or light refurbishments.
• Covering mortgage payments during tenant void periods.
• Upgrading properties to meet new Energy Performance Certificate (EPC) standards.
• Bridging financial gaps while waiting for a full remortgage to complete.

Unlike standard loans, you only pay interest on the money you actually draw down, not the entire credit limit. This makes it a cost-effective safety net for active property investors.

Tax rules for individual BTL landlords

If you own your buy-to-let properties in your own name as an individual, your tax treatment is governed by the UK’s income tax rules for residential landlords. Under these rules, commonly known as Section 24, individual landlords can no longer deduct finance costs directly from their rental income to reduce their taxable profits.

Finance costs include mortgage interest, interest on bridging loans, and interest on secured borrowing like a BTL revolving credit facility. Instead of deducting the interest, individual landlords receive a basic-rate tax reduction. This is currently calculated as a 20% credit on your borrowing costs.

For example, if you draw funds from your revolving credit facility to refurbish a property and pay £5,000 in interest over the tax year, you cannot deduct that £5,000 from your rental profit before calculating income tax. Instead, your final tax bill will be reduced by 20% of that interest amount, which equates to a £1,000 tax reduction. If you are a higher-rate or additional-rate taxpayer, this rule may result in a higher overall tax liability than you might expect. For detailed government guidance on these rules, you can review the GOV.UK guidance on income tax relief for residential landlords.

Tax rules for limited companies (SPVs)

The tax landscape is very different if you hold your buy-to-let properties within a limited company, often referred to as a Special Purpose Vehicle (SPV). Limited companies are subject to Corporation Tax rules rather than individual Income Tax rules.

For a limited company, the interest paid on business borrowing—including a secured BTL revolving credit facility—is generally treated as a fully allowable business expense. This means that 100% of the interest paid on drawn funds can typically be offset directly against the company’s rental income. This reduces the company’s net taxable profit, thereby reducing its Corporation Tax liability.

Because of this distinction, many property investors choose to manage their portfolios and their revolving credit facilities through a corporate structure. However, moving properties into a company can trigger other taxes like Stamp Duty Land Tax and Capital Gains Tax, so professional tax advice is highly recommended.

How the purpose of the funds impacts tax deductibility

Regardless of whether you operate as an individual or a limited company, HM Revenue & Customs (HMRC) requires that the borrowed money is used “wholly and exclusively” for the purposes of your property business.

If you draw funds from your BTL revolving credit facility to pay for a personal holiday or buy a personal vehicle, the interest on that drawn amount will not qualify for tax relief or business expense deductions. To keep your accounts clear and compliant, you must be able to demonstrate that every draw on the facility was used directly for your property investment business, such as upgrading a kitchen, paying an auction deposit, or funding EPC upgrades.

Comparing revolving credit to bridging finance and remortgaging

When looking to fund new projects, landlords typically look at three main options: bridging finance, remortgaging, or a secured revolving credit facility.

Bridging loans are useful for short-term needs, but they can be slow to arrange, and they usually roll up interest, meaning monthly payments are not standard. Furthermore, every time you need a new bridging loan, you may have to pay new arrangement fees, valuation fees, and legal costs.

Remortgaging to release equity is another route, but it can trigger heavy early repayment charges on your existing first-charge mortgage. It also takes time, which is not ideal when you need to act quickly, such as at a property auction.

A secured revolving credit facility sits behind your existing mortgage as a second charge, keeping your low first-charge rate intact. Once set up, you can draw down funds instantly without paying new arrangement fees each time. This flexibility can make your interest payments much more efficient, which in turn simplifies your tax planning.

Applying for a BTL revolving credit facility

Because this is a secured second-charge facility, lenders will assess the equity in your buy-to-let property portfolio alongside your personal and business credit profile. To understand your credit standing before making an application, it is wise to check your credit history. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

Working with a broker can help you navigate the options available. Promise Money is an FCA-authorised broker (Ref: 681423), not a direct lender. We work to find the right secured revolving credit facility for your investment needs, ensuring you secure competitive rates and flexible terms.

Always remember that secured borrowing carries real financial responsibilities. Your property may be at risk if repayments are not made. Failing to meet the terms of your secured facility could lead to serious consequences, including legal action, additional charges, increased interest rates, and potentially the repossession of your investment property.

People also asked

Is a BTL revolving credit facility an unsecured loan?

No, this is a secured financial product. It is secured as a second charge against a residential buy-to-let property, meaning your property is used as collateral for the facility.

Can I deduct the arrangement fees of a revolving credit facility from my taxes?

For limited companies, arrangement fees are generally treated as allowable finance costs that can offset Corporation Tax. For individuals, these fees are treated as finance costs and are subject to the same 20% tax credit restriction as the interest payments.

How long does it take to get cash from a revolving credit facility?

Once the initial second-charge facility has been legally established, future drawdowns are fast, with funds typically arriving in your account within 24 to 48 hours of your request.

What happens if I don’t use the credit facility?

Because interest is only charged on drawn amounts, you will not pay any interest while the facility sits empty, though some lenders may charge a small annual maintenance or product fee.

Can I use this facility to pay a deposit on a new investment property?

Yes, many landlords use the facility to quickly draw down funds for auction deposits or portfolio expansion before securing long-term first-charge finance.

Summary and next steps

A BTL revolving credit facility offers landlords unparalleled flexibility, acting as a secured property overdraft to fund refurbishments, void periods, and rapid portfolio expansion. Whether the interest you pay is tax deductible depends on whether you operate as an individual or a limited company. While limited companies can typically deduct interest as a business expense, individuals will receive a 20% tax credit.

To explore how a secured revolving credit facility could benefit your buy-to-let business, contact the team at Promise Money today. Call us on 01902 585020 or visit our information hub at promisemoney.co.uk/landlord-revolving-credit-100 to learn more.