FHLs and capital account

FHLs and capital account

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Hello

I understand that the owner of a property business can borrow against his capital account and any interest charged on this is deductible against the property income

For instance

BIM45700

Our client built and self funded a FHL and is now looking to take out a mortgage to buy a separate non letting property. If he takes out the mortgage secured on the FHL and the mortgage is less than his capital account will the interest be allowable against the FHL income?

Thank you

Colin

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By Paul Soper
16th Jan 2014 13:14

Indeed it will be

Businesses can be financed in one of two ways, the owners own capital of capital borrowed from another.  It is up to the owner of the business to decide the mix of the two sources and if interest is payable on the loan capital it will qualify as a valid trading deduction.  It doesn't matter what the loan is secured on, whether it is the FHL property or indeed any other asset that they might own, what matters is that demonstrably the owner's capital in the business was withdrawn and replaced by the loan capital.  Draw up a suitable before and after balance sheet to demonstrate this.

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