Dear All
I have borrowed money from my parents to start a new business venture. My parents remortgaged their house to give me a large capital sum. However, part of the deal was that i would pay off any interest that accrued on their mortgage account.
I am aware that there is a tax releif available on business loans by way of an interest deduction against all other income.
Although the loan is between me and my parents, it is infact for the business. Does this releif apply to me?
I would be grateful if anyone could help me?
Thanks in advance
Brad
Brad
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Replies (1)
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The statutory reliefs for interest ...
... which you refer to don't apply to a sole trader who borrows money to invest in his won business - he claims relief for the interest as a business expense. The general test of allowabilty of any business expense (though certain expenditure is specifically not allowable) is whether the expense is wholly and exclusively for the purposes of the trade. As this seems to be I don't see that there should be a problem. I don't think the fact of you paying your parents' mortgage interest is relevant. You received a loan for business purposes and are paying interest on it. I don't think this gives your parents any tax problem either as the arrangement is for you to pay the interest direct and you should make sure you do just that. If you give them a cheque and they bank it then they could be said to have received interest, but the interest they pay won't be tax deductible because the rules for interest relief don't provide for loans to lend to sole traders - they would have to be partners in your business to get interest relief.