Joint property - sole loan

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A husband and wife resident in Australia bought an investment property in the UK and have been filing tax returns for some years.

Because she is a Chinese national, she does not qualify for the UK personal allowance whilst he does. She has therefore been paying tax but he hasn't as his half share of profits is always below the personal allowance.

He now tells me that he took out a personal loan in Australia in his sole name in order to buy the property in the first place!

It is clearly not worth opening up earlier years for him as no tax has been paid but it would be for her if she qualified for relief on the interest paid.

My question is whether she is entitled to interest relief on her half share of the profits when the loan interest has only been his personal liability. I have tried researching but cannot come up with a definitive answer.

Replies (9)

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By Trusted Tax Advisers
30th May 2019 16:15

SAIM10030 would seem to suggest that HMRC's view is that the loan must be in joint names if both are to benefit from interest relief.

A loan in the husband's name alone would only provide him with interest relief.

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By sirp2000
30th May 2019 16:13

Many thanks for the reply. I came across SAIM10030 in my research but as interest relief for let residential property is not within Chapter 1 of Part 9 of ITA 2007, I fear that it does not necessarily apply in this case.

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By Trusted Tax Advisers
30th May 2019 16:29

Although I appreciate that this manual primarily relates to loans for other purposes and mortgage interest relief relies on business income principles, this manual may be an indication of the stance they would take on such situations.

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By Vile Nortin Naipaan
31st May 2019 11:41

Absolute b0llox! The test for interest deduction against business profits is just whether the interest is incurred wholly and exclusively for the purposes of the business concerned.

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By sirp2000
31st May 2019 15:01

.

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By sirp2000
31st May 2019 09:38

Thank you and I agree. But I would have liked to find something more definitive before telling my client that a claim will not be possible!

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By Vile Nortin Naipaan
31st May 2019 11:42

sirp2000 wrote:

... before telling my client that a claim will not be possible!

Why on earth would you want to tell them that?

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By Vile Nortin Naipaan
31st May 2019 11:40

If the loan interest is being paid wholly and exclusively for the purposes of the joint property business, then it is deductible (or a proportion of it is from 2017/18 on). SAIM10030 has no bearing whatsoever (that relates to a test imposed by the legislation in ITA 2007, s 383 on). For 2017/18 onwards, the tax reducer should be available to the Chinese partner on her "share" of the interest, as the initial test is whether the interest would be deductible in computing the profits of the business.

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By sirp2000
31st May 2019 15:03

Thank you, Vile. I am very grateful for your answer, which is good news for my client.

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