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Tax Relief on Interest Suffered

Does anyone know whether it is allowable to claim tax relief against a self assessment on interest suffered when the individual has taken out a personal bank loan, invested the loan into a company? If so what is the process? What needs to be demonstrated i.e. bank statements showing cash into the business and the resultant calculation of interest? Any advice greatly appreciated.

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15th May 2012 16:36

Should be OK.

I've actually done this myself. e.g.....

Borrowed £xxx to purchase shares in a close company. Interest of £x charged (don't know the amount of the top of my head). The interest is used to enhance the personal allowance as "Qualifying Loan Interest". 

See http://www.hmrc.gov.uk/helpsheets/hs340.pdf for reference. 

I calculated the interest due on sum of digits basis, sent my schedule to HMRC along with a letter saying "I invested £xyx into company X on date, funded by a loan of £x. Please see enclosed schedule showing the interest on a sum of digits basis split into tax year. Please add the appropriate interest relief into my tax code for the next x years".

2 weeks later I received my updated tax code. 

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By cpgibbs
16th May 2012 14:47

Many Thanks for your help! :-)

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16th May 2012 15:06

Take care

It must be a bank loan and not an overdraft.  If it is a bank loan then the bank will provide, on request, a certificate showing the interest paid and that will substantiate the deduction that you claim in the self assessment return.  The deduction is claimed in box 5 on page 2 of the SA101 form.

Is the company paying interest on the sum lent to it? - if so it must deduct tax at source and account for this under the CT612 mechanism, the individual recovers the tax deducted by the offset of qualifying loan interest against this sum.

It is possible to suggest that the relief is coded in for the future as suggested above but if interest is withdrawn from the company this will then create a liability as the relief for the interest paid will have been allowed against other income.

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By cpgibbs
16th May 2012 15:47

Many Thanks for this. I am

Many Thanks for this. I am aware that it must be a bank loan (not a credit card or overdraft). I have the bank loan statements showing the interest paid. The personal bank loan has been provided to the company at 0% (essentially directors pumping cash into the company).

Thankfully as the loan interest to the company is 0% it would appear there's no liability.

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16th May 2012 16:48

Quite right

As long as the company used for business purposes etc then no liability but relief for you, HMRC will probably, if they query it, ask to see interest certificates, before self-assessment they had to be submitted as a matter of course and the bank should produce them free of charge.  The only thing to watch then is that your director's current account does not become overdrawn as that will be treated as a withdrawal of capital reducing the qualifying loan even if not used for that purpose.

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By cpgibbs
17th May 2012 17:00

Superb!

Many Thanks Paul for the clarification.

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20th Mar 2013 20:43

..Tax Relief on Interest Suffered

I thought so. Thank you.

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