A director/shareholder borrows £100,000 to lend to his company to enable it to purchase stock. He claims tax relief on the loan interest paid under Section 360 ICTA 1988.
The company subsequently repays him an amount of £50,000, which he places on deposit. The claim under Section 360 is therefore reduced by 50% from the date of repayment, and he declares the interest received on his Tax Return and pays the higher rate tax due.
After a while the company requires further funds to purchase more stock, so the director re-lends the company the £50,000 that he still holds on deposit.
Can he revert to claiming 100% of the interest paid under Section 360 from that date?
Or would he need to take out a new loan (and incur further costs) to qualify for relief?
Any advice would be much appreciated.
Michael
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As far as I can see ...
.. according to s363 if you recover part of the loan without using the amount recovered in reduction of the loan you are deemed to have thus reduced the loan in relation to subsequent interest payments. There doesn't seem to be any scope for restoring relief if you later re-lend the money. Therefore unless anyone has any better ideas I'd say the client would have to repay part of the loan and take out a new one.