HMRC's update to BIM45690 and BIM45700: What it means for landlords refinancing their portfolios

On 1 July 2026, HMRC updated BIM45690 (Funding the Business) and BIM45700 (Withdrawal of Capital from a Business) in its Business Income Manual. HMRC describes the changes as providing "clearer context" and removing unnecessary calculations, but the revised wording could have real consequences for landlords who refinance rental properties and withdraw capital from their property business. 

These manuals apply not only to trading businesses but also to unincorporated property businesses, so the update is directly relevant to individual landlords and property partnerships. 

What's changed?

For years, landlords have relied on HMRC's guidance that an owner could withdraw capital they had introduced into a business and replace it with borrowings, with interest on that borrowing remaining deductible provided certain conditions were met. The revised guidance takes a noticeably different tone.  

HMRC now states that "simply exchanging existing capital for loan finance does not on its own satisfy the wholly and exclusively test," and goes on to say that interest is deductible only where the borrowing is used for business expenditure or the acquisition of business assets. 

The shift in emphasis is subtle in wording but potentially significant in effect: attention now falls on the actual use and destination of the borrowed funds, rather than on the historic principle that borrowing simply replacing capital already invested in the business was sufficient to meat the relevant tests. 

Why this matters for landlords 

Many landlords buy investment property with personal funds, inheritance, or proceeds from other investments, then refinance years later once values have risen, extracting equity in the process.  

Tax advisers have historically taken comfort from guidance suggesting that replacing capital with external borrowing didn't in itself prevent interest relief, on the basis that the borrowing became the new funding source for the business. The revised wording instead points to the purpose of the borrowing and where the money actually goes. 

Example 1: Business use 

A landlord remortgages a rental property and uses the proceeds to purchase another buy-to-let property, fund major repairs or carry out improvements to existing rental properties.  

In these circumstances there is a clear business purpose for the borrowing, and interest relief should generally continue to be available, subject to the usual restrictions applicable to residential landlords. 

Example 2: Private use 

A landlord remortgages a rental property and uses the released funds to buy a holiday home, purchase a private residence, pay school fees, or make other personal investments.  

HMRC's new examples indicate that where borrowing finances private expenditure, the interest is unlikely to satisfy the wholly and exclusively requirement, and relief may therefore be denied. 

Is this a change in the law, or just HMRC's interpretation? 

HMRC manuals don't create legislation; they set out HMRC's interpretation of it. That raises the obvious question: has the legal position actually changed, or has HMRC simply revised how it reads the existing law? No significant legislative amendment appears to explain this shift, which has led advisors to question whether the update is a genuine change in approach rather than a mere clarification. 

This distinction matters. A change in HMRC's guidance doesn't automatically mean established case law and principles have stopped applying, and it's worth remembering that manuals carry no legal force in their own right, they simply reflect HMRC's current thinking and are always subject to challenge if wrong. 

What landlords should do now 

Landlords who have already refinanced and withdrawn capital shouldn't assume their existing interest relief claims are automatically invalid. For anyone planning future refinancing, though, it's sensible to document clearly the purpose of any new borrowing, retain evidence of how the funds are actually used, think carefully about whether proceeds are being applied for business or private purposes, and take advice before undertaking significant equity withdrawals. 

Where interest relief depends on refinancing carried out in earlier years, it may be worth revisiting that position in light of the updated guidance to consider the purpose of the funding. 

Final thoughts 

The July 2026 changes to BIM45690 and BIM45700 could prove to be one of the more significant updates affecting landlords in recent memory. HMRC presents them as clarification, but the revised wording appears to narrow the circumstances in which interest relief will be accepted where borrowing replaces existing capital.  

For landlords who regularly refinance their portfolios, the message is straightforward: the connection between borrowing and the property business is likely to attract closer scrutiny. Until HMRC says more, or the point is tested at tribunal, capital extraction and refinancing should be approached with added caution.