Qualifying Loan Interest allowable?

Qualifying Loan Interest allowable?

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As clients cannot now rent business premises to their own company now without losing all entitlement to Entrepeneur's Relief (unless its below a market rent), can they instead claim tax relief (through their SA return) on the interest paid on the mortgage used to purchase the premises they own personally, which is used by their limited company for its trade?

has anyone worked out the trade-off between loss of ER where rent is still paid (to cover the mortgage payments) and cost of extracting funds from a company to service mortgage in order to retain ER on say a typical £250,000 property with 75% LTV commercial mortgage? I'd be interested to see the results if this has be done with a few scenarios. Where the loan is variable then repayments made currently, may well be below the market rent level.

many thanks.
SH

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By User deleted
27th Feb 2009 15:48

No
I'll let someone else deal with the second part to your query (very difficult I would imagine since the cost of ER is going to depend on future property values - my gut instinct is that the tax charge on extraction of funds is going to outweigh the ER saving unless property values shoot up - but as you say perhaps someone has considered a scenario-based exercise).

But in answer to the first part, no, you will not be able to claim tax relief on the interest, as it is not arising on a qualifying loan. It is an expense of the Sch A business and so the only means of relief is to raise a rental charge to cover it.

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