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HMRC internal manual

Property Income Manual

Deductions: interest: further restrictions of relief for interest on a loan used to invest in a property partnership

ITA07/S383(1), S398 and S399

Individuals may claim relief against taxable income for interest on loans taken out to invest in a partnership (ITA07/S383(1) and S398).  That relief is also subject to restriction, where the partnership in question carries on a property business which includes the letting of a dwelling-house or part of a dwelling house (ITA07/S399A and 399B).

The restriction applies to the proportion of interest paid which can (on a just and reasonable basis) be attributed to the dwelling-house letting element of the partnership’s whole business.

Basic rate tax reducer

The individual is entitled to deduct from his tax liability, the proportion of the interest which would by relievable under ITA07/S383(1) were it not for the restriction imposed by ITA07/S399A, multiplied by the basic rate of tax.


In the tax year 2020/21, Jo pays loan interest of £10,000 on a loan which she has taken out to invest in a property-letting partnership.  The partnership owns a block of residential flats which are let to tenants, and its whole property business relates to those lettings.

Under ITA07/S383(1) and S398 Jo would be entitled to deduct the £10,000 from her income, before calculating her income tax liability for the year.

ITA07/S399A prevents the relief from being deducted from Jo’s income.  Instead, the basic rate of tax is applied to the £10,000, and the resulting sum is deducted from Jo’s tax liability.