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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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.
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.
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.
... before telling my client that a claim will not be possible!
Why on earth would you want to tell them that?
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.