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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Presume not within a company
Presume the interest received and paid are not within a company?
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.
You don't need a business
The loan interest is deductible against general income, as the loan was taken out to finance a business.