Tax relief for loan interest

Tax relief for loan interest

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A partner in a firm has a captial account. He needs to borrow some addiitonal funds on his home mortgage for personal reasons.

It has been suggested that he withdraws his capital account from the partnership and repays his home mortgage. He than takes out an increased home mortgage and invests some of this into the partnership. He can then claim tax relief on the loan interest as money invested in a partnership.

Will this work? Is there any anti avoidance?
Michael Wood

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By kenmoody
20th Dec 2007 10:26

Should be OK
If you follow the guidance at BIM 45700 and thereabouts HMRC state that a proprietor has a right to withdrawn capital and that this may be replaced by an interest bearing loan. What you do with the capital withdrawn is irrelevant.

The only problem seems to be where there are revaluation surpluses or overdrawn capital accounts - you will see what I mean from the examples given.

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