I am a foreign investor buying an-off plan unit in London and planning to use my overdraft (OD) to pay off the property. My OD is not in GBP. I plan to drawdown the OD whenever the exchange rate is favourable to get ready the amount for progressive payments, which means I will have a GBP account stand-by and my payments to the UK will be from this account instead of the OD account. Can the OD interest be tax deductible? I could dedicate the OD account for this property only, so no other transactions involved apart from buying GBP for the payment of this property.

Arthur Weller replies:
If you look at www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2105, you can see that overdraft interest is an allowable expense (until April 2017) to offset against rental income. But in your scenario the payments for the property are being made from a different (GBP) account. But if you can show that the two accounts are 'back to back' and that the overdraft interest is in reality funding the property, then it should be OK. You should certainly have a dedicated account for the property purchase, so that you can show that all the interest being paid is solely for the purchase of the property. The fact that you are paying the interest abroad is not an issue, as long as it is a commercial rate of interest (see www.gov.uk/hmrc-internal-manuals/property-incomemanual/pim2110).