HMRC has replaced long-standing guidance that accountants and tax advisers may have relied upon when advising landlords about refinancing and withdrawing capital. This change could lead to landlords facing unexpected tax demands if HMRC applies its revised interpretation to historic transactions.
Previously, HMRC's Business Income Manual included a detailed example illustrating how a landlord could refinance a rental property, withdraw capital, and still claim interest relief on the replacement borrowing. This example was also reproduced by the government's former Office of Tax Simplification.
The updated BIM45700, amended on 1 July 2026, removes this example and replaces it with one involving a similar transaction, but now states that the interest is not allowable. The new version omits calculations that previously helped distinguish between replacing business capital and financing additional private expenditure.
If this new approach is applied retrospectively, accountants and tax advisers may need to defend advice that was based on HMRC's former guidance. Their professional indemnity insurers may also be asked to cover the costs of investigating and resisting claims.