Is loan interest allowable

Is loan interest allowable

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I have taken on a client who recently sold a business.  He sold this businesses to a former employee using what can best be described as an HP agreement.  Under the terms of the agreement he now receives monthly payments which are partly loan repayments and partly interest on the loan.  Due to the method he used to sell the business he was left with outstanding business loans which he no longer has business income to claim the interest against.  My question is can he set the loan interest paid against the loan interest received.  My initial thoughts are no but I have my doubts.  Does anyone have any thoughts on this?

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paddle steamer
By DJKL
03rd Nov 2014 21:25

Presume not within a company

Presume the interest received and paid are not within a company?

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By Stuart.thomson
03rd Nov 2014 23:47

A very good question.

It is highly unusual in my experience for a sale to exclude liabilities used in the business but of a personal nature. Are you sure that the lender does not need to consent to the transfer of assets to the buyer or that the Sale and Purchase Agreement does not transfer this liability to the buyer.

In my humble opinion it is a loss arising out of the trade not the cessation and so I think deductible (s.254 ITTOIA 2007).

If I have understood the circumstances wrongly then perhaps the easiest solution is to ask the buyer accept novation of the loan and reduce the interest he is receiving. The only difference being a differential in interest rates which can be commercially negotiated.

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By The Grammar Police
04th Nov 2014 20:41

You don't need a business

The loan interest is deductible against general income, as the loan was taken out to finance a business.

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By steve2646
14th Nov 2014 13:45

Can I net off Interest paid against interest received

Thanks for your replies.  The interest was not within a company.  My client still I suppose technically owns the business with ownership being transferred once the last payment has been made (much like an HP agreement) although as far as HMRC are concerned the business has now ceased.  I note the general opinion that the loan is allowable against general income as basically it came from a trade.  As the trade no longer exists however is it reasonable for it still to generate a loss?  Would it be reasonable for me to net of the interest paid against the interest received when submitting his return?

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