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Mortgage interest/arranging fee expenses

when remortgage own residential home to fund company buy to let property deposit

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We remortgaged our residential house in 2017 and increased 50k borrowing to fund our first ltd company buy to let flat, so the deposit of the first company buy to let flat comes from the 50k borrowing and our 30k director's own money. this 80K in total was a no interest director’s loan to the company. Can we claim mortgage interest on the 50k borrowing and the mortgage arranging fee/remortgage solicitor /bank transfer fee as revenue expense? Any advise appreciated!

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15th Aug 2018 12:04

The thing is, the company hasn't paid any interest, if I read your post correctly.

Is that so ?

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By n h
15th Aug 2018 12:23

Hi, the company pays interest on the buy to let mortgage only which I have no doubt
can be claimed as revenue expense alone with the arranging fee. what I am not sure is the mortgage interest on the 50k borrowing and the mortgage arranging fee/remortgage solicitor /bank transfer fee for our residential home.

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15th Aug 2018 12:35

Ah, right. So the company has borrowed some money from a bank and is paying the loan off.

Meanwhile, you've taken out a £50k loan secured on your house, paying interest on this, and you've lent this + another £30k of your own savings to the company interest free ?

Is that right ?

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By n h
15th Aug 2018 12:39

Yes, we increased our residential borrowing from 250k to 300k.

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15th Aug 2018 12:48

The company can't claim for interest which you pay.

However, if you can identify the interest on this additional loan, you may be able to claim against your personal tax under the head of "lending money to a company which is used wholly and exclusively for the purposes of its business ..."

Have a look at ITA 2007, ss 392-395 to see if you're eligible.

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By n h
to lionofludesch
15th Aug 2018 15:59

Thanks lionofludesch
had a look at ITA 2007, ss 392-395 and think we are eligible. will be claiming this as a interest expense but do we split the total in 2 for separate tax return or one of us can claim the whole amount? I don't suppose there is any tax relief on the mortgage arrange/solicitor fee/bank transfer fee for our residential remortgage?

Good point Martin B
I guess apart from the above tax relief on the 50k interest, we can charge the company 1% interest on the 80K director's loan so the interest received 800 per year split to 2 directors will be below the tax free allowance for the higher tax rate hence no tax to pay on that. how do we start charging the company interest? any documents/ board meeting required?

Thanks a lot for all your input.

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to n h
15th Aug 2018 16:08

n h wrote:

Thanks lionofludesch
had a look at ITA 2007, ss 392-395 and think we are eligible. will be claiming this as a interest expense but do we split the total in 2 for separate tax return or one of us can claim the whole amount? I don't suppose there is any tax relief on the mortgage arrange/solicitor fee/bank transfer fee for our residential remortgage?

The presumption would be 50:50 unless you can show otherwise.

Don't see why the charges can't be claimed as an "incidental cost of obtaining finance".

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15th Aug 2018 13:59

What if you adjusted (corrected?) the company accounts to show there is no £50k director loan but you have a £50k beneficial interest in the property that is owned by you jointly with the company and then the rental profit is self-assessed accordingly in relation to your respective share in the property (a bit like partnership accounts)? (Or maybe that's too much hassle.)

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to Justin Bryant
15th Aug 2018 14:15

Whose name is on the deeds ?

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By n h
to lionofludesch
15th Aug 2018 14:22

both company directors's personal name are on the residential house deed

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to n h
15th Aug 2018 14:29

n h wrote:

both company directors's personal name are on the residential house deed

If by that you mean the house they're living in, that's irrelevant.

Whose name is on the deeds of the house the company bought to rent out ?

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By n h
to lionofludesch
15th Aug 2018 14:32

It's the company's name.

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to n h
15th Aug 2018 14:36

Then it's a stretch to say it's jointly owned.

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to lionofludesch
15th Aug 2018 14:46

But not a ginormous stretch if that more accurately reflects the reality (since any such shared beneficial interest need not be registered at HMLR but is a matter of fact) .

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to Justin Bryant
15th Aug 2018 14:51

Justin Bryant wrote:

But not a ginormous stretch if that more accurately reflects the reality (since any such shared beneficial interest need not be registered at HMLR but is a matter of fact) .

Maybe.

On the other hand, if we're saying it's interest to buy a share in this rented property, relief might be restricted these days. As a loan to a company, it wouldn't.

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to lionofludesch
15th Aug 2018 16:06

There would be no interest restriction in the human's ITSA since it's all W&E etc. re his % share.

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to Justin Bryant
15th Aug 2018 16:17

You don't think that 75% would be allowable and he gets a tax credit on the other 25% ?

Can you back that up anywhere ?

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15th Aug 2018 15:17

Depending on your personal tax position, you could charge the company interest on the directors loan/funds given to the comany- £80k. This would be tax dedutable and the company would need to submit the quarterly CT61 returns etc. ( ie deduct basic rate tax and pass over)

Imortantly the interest you receive will be subject to personal tax and hence your personal tax position needs to be considered. You dont want to be paying 40% tax on interest and getting a 19% C tax deduction

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16th Aug 2018 08:15

I wouldn't have thought that the interest paid by the director would be eligible for tax relief as the company is an investment company, not a trading company. Happy to be proved wrong though.

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By n h
to Rammstein1
16th Aug 2018 09:15

according to the Income Tax Act 2007
Interest on a loan within section 392(1) to an individual is eligible for relief only if—
(a)when the interest is paid the company is not a close investment-holding company, and
(b)the capital recovery condition and either the full-time working conditions or the material interest conditions are met.

I think the tax relief does not apply to 'close invesment-holding company'. is there any other ground for the tax relief to be excluded because the company is a investment company?

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to n h
16th Aug 2018 09:23

Is this not a close company which is investment holding?

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By n h
to Rammstein1
16th Aug 2018 09:40

don't think a residential buy to let company is .
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60710

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to n h
16th Aug 2018 10:27

n h wrote:

don't think a residential buy to let company is .
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60710

Correct.

Tick VG

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By n h
28th Aug 2018 10:25

Spoken with an accountant and he thinks that the interest relief is only available if we lend the money to a trading company and since we are lending money to a property investment company, the relief does not apply. I can't see this written anywhere on the income tax act 2007, and wondering if anyone can back this statement up?

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to n h
28th Aug 2018 17:18

Hard to say definitively that your accountant is wrong but, in general, a company renting out property is NOT an investment company.

It's a mistake that was made on here fairly recently

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