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Non Trade Loan Relationship interest relief ?

2 Loans - One to fund the purchase of an option to buy property & another to buy the property

This question follows an earlier original topic I raised recently under the title "Off Plan Property Investment by company " - which I now recognise as somewhat misleading.

My question relates to a client UK trading company (IT related) with profits circa £125k. It has contracted to purchase certain residential properties overseas - (the fact that these properties are still being constructed is not relevant). 

From an accounting perspective the transaction can be interpreted , in effect, as two separate transactions:

1. Purchase of an option for £445,817.76 payable in instalments over 5 or so years to acquire (when the option money is fully paid ) the title of the property units for a sum of £445,817.76. The vendor grants an interest bearing loan to fund the option purchase.

2. My client obtains title to the units and excercises the option to purchase  The vendor grants an interest bearing loan to fund the purchase of the properties.

My client's intention (once title is obtained) is to keep the properties as investments for income or capital appreciation.

My understanding of the Non Trade Loan Relationship rules is that the interest payable on Loan #2 (Property purchase) can be offset against current year trading profits. But what about the loan interest on the option purchase?

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By ms998
23rd Mar 2018 13:50

Why do you think loan #1 not a Non Trade Loan Relationship?

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By hmyers
to ms998
23rd Mar 2018 14:24

I do think it is a Non Trade Loan Relationship but this is the first time I personally have come accross a loan for a financial asset (I suppose it is a common occurence for some accountants)

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By DJKL
23rd Mar 2018 14:48

Some observations but no answers.

What will likely be the tax position re rental income in the country in which the property is located?

Under DT will the interest be relievable in that country?

Will there be issues in that the interest will presumably be incurred long before the foreign rental income stream commences (unless company already has foreign rental income stream)?

Is acquiring overseas property via a UK resident company sensible- has your client taken appropriate advice re this aspect vis a vis the particular country?

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