Property purchase comprising business and private premises

Property purchase comprising business and...

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A client has purchased a business comprising a business and private propert,y along with goodwill and fixtures. A rough split of the assets acquired is goodwill, fixtures and business property £250,000 and the private propertry as £180,000. The client has obtained a bank loan for £236,500 and the balance of the purhase price has been funded from the sale proceeds of the clients former home.
There is nothing on the loan documentation that states the loan is solely to purchase a business.
Is the full amount of the interest on the loan available as a tax deduction versus the profits of the business?

Many thanks for any replies.

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By DMGbus
16th Jul 2009 13:32

Interest paid to be apportioned
So far as I am aware the most recent case ruling on this subject is Dixon vs HMRC dating from late 2005 published early 2006...

Decisions 2006/Dixon v Revenue and Customs Commissioners - [2006] STC (SCD) 28
SpC 511
SPECIAL COMMISSIONER: MICHAEL TILDESLEY OBE

extract as follows:-

Held - The taxpayer bought a package comprising a business with a home for a single price, and the mortgage was taken out to facilitate the purchase of the whole package, not just individual parts of it. Accordingly, the purpose of the mortgage was to purchase a parcel of assets which were the business assets associated with the newsagent and shop and the private dwelling house. The taxpayer took out the mortgage to meet the shortfall between the purchase price of the business and the market value of his former residence and the purpose of the mortgage was to facilitate the purchase of the whole package rather than two separate properties.

As a result, even though money introduced sufficient to cover the whole cost of the private residence element of the transaction, part of the loan interest was to be disallowed - a wholly unfair result that might have been knocked into touch had a separate contract been arranged for the purchase of the freehold element paid for out of personal funds.

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