Loan interest or Joint Venture

Loan interest or Joint Venture

Didn't find your answer?

A developer has borrowed funds from an unconnected individual to assist in the purchase and development of a property. The lender has no involvment in the development of the property and the loan is not secured on any of the borrowers assets. The agreement is that the loan will be capital will be repaid once the development is sold - with the interest payable on the loan being determined by reference to the net profit made on the development. Is the 'interest' actually interest in income tax terms for the lender and borrower? Many thanks.
James

Replies (1)

Please login or register to join the discussion.

avatar
By User deleted
01st Nov 2005 11:15

This can give income tax and VAT problems
If the Revenue take the view that the "financier" is enjoying a profit share as a developer, they may disallow the deduction to the actual developer-whilst arguing that the payment is a supply for VAT and so the financier may have to register for and charge VAT.

the cleanest way round both problems is to set up the JV as an LLP

Thanks (0)