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?