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Qualifying loan - Personal Mortgage to ltd co

Qualifying loan

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Hi All, 

I have a client who took out a 2nd mortgage on their personal property to fund a deposit on a BTL property bought via their Ltd Co (close company)

summary is : £250k borrowed against their property, then directly transferred to their business bank account in order to fund the deposit.

I believe the interest on the £250k could qualify as a qualifying loan and therefore be available for relief on their self assessment. However when entering this into my software (digita) there are two options- "loans" or "loans relating to property " if I choose the first option then the interest relief is not restricted, however if I choose the second option the relief is restricted (client is 40% tax payer).

Question is: should this loan be subject to the property interest restrictions or not? As far as I can see it's only restricted if lent to partnerships, not ltd cos, but would be good to get others thoughts / experience on this.

many thanks

Replies (14)

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By David Ex
20th May 2021 21:17

The loan isn't a “Dwelling-related loan” (S272B(2) ITTOIA 2005) so no restriction, I would say.

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By Tax Dragon
20th May 2021 21:29

Some questions come into the category of 'no accountant would ask that'. This is one such.

Tax relief for interest can be as a business expense or by way of relief provided by Ch1 of Pt8 of ITA2007. Which do you have here? A business? Where's the income?

True, relief as a business expense in relation to dwelling-related loans has in essence been replaced with a new form of relief, called a tax reducer. But you still need the business.

My advice to you OP: forget whatever answers you get here; get yourself an accountant.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
20th May 2021 21:50

I wouldn’t be looking past Ch. 1 of Pt. 8 of ITA 2007.

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Replying to Wilson Philips:
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By Tax Dragon
21st May 2021 06:11

I confess (having posted my comment) that I did quickly peek at the first five words of s272A to make sure they said what I remembered/expected them to say :○)

It's not a stupid question. But it is stupid to pretend to be an accountant when you're not one. Even stupider to lie about using Digita - if the OP here really is using Digita, I hate to think what a mess s/he's making to be able to do what s/he said s/he did.

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Replying to Tax Dragon:
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By Tax Dragon
21st May 2021 06:42

(And FWIW maybe stupider yet to do what s/he says s/he's done* without taking advice. And possibly stupidest of all to replace advice with internet banter from randoms like you and me.)

*Edit, sorry, I mean do what s/he says the client has done.

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Replying to Tax Dragon:
My photo
By Matrix
21st May 2021 06:25

They are an accountant TD and I don’t see anything wrong in asking questions on here. I ask plenty of dumb questions.

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Replying to Matrix:
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By Tax Dragon
21st May 2021 06:47

Matrix wrote:

They are an accountant.

I don't know what you're basing that on.

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Replying to Tax Dragon:
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By Mr_awol
21st May 2021 12:08

Tax Dragon wrote:

It's not a stupid question. But it is stupid to pretend to be an accountant when you're not one. Even stupider to lie about using Digita - if the OP here really is using Digita, I hate to think what a mess s/he's making to be able to do what s/he said s/he did.

At first reading i thought this was harsh, possibly unjustified. However, in trying to work out what made you so certain I've just hopped into Digita's tax module and cant find the description entered in quotation marks in the OP. I can find two separate boxes, in the qualifying interest section, which do ask you to confirm whether the loan was property-related or not, but find it slightly odd that the OP clearly states "loans relating to property" in quotation marks when that's not what it says.

Unless they've released yet another update, of course, and i haven't had (or haven't read) the email, perhaps you are right.

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Replying to Mr_awol:
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By Tax Dragon
21st May 2021 13:02

If I'm wrong I apologise. In fact, even if I'm right I apologise. OP - I was at much at fault in my poor reading of your question as you were in your poor writing of it.

By way of atonement... the restriction Digita refers to (whether as you say or in Mr Awol's version) is that in s399A ITA 2007. This has effect to restrict the relief otherwise available under Ch1 Pt8, where the loan is used to invest in a property partnership. As you say, it's not relevant in your scenario. (And s272A/s272B(2) are even more not relevant.)

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Replying to Tax Dragon:
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By Mr_awol
21st May 2021 14:25

I'm still interested to see whether the OP knows the latest product version and build number, or whether they've been outed as a pretend accountant.

To be fair though (and I'm not sure if I'm going soft or merely in a forgiving mood today) if someone's life is so bad that given the opportunity to pretend to be anything/anyone, they choose an accountant - well i guess they deserve a bit of sympathy.

Mr_Awol
Part time Astronaut, Chippendale, and the third man on the balcony during op nimrod

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Replying to Mr_awol:
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By Tax Dragon
21st May 2021 14:47

I used to use Digita but don't any more (though I did like it, tbh). Anyway I can no longer check. It has to be said that 'property-related' (per the OP or per you) is a truly poor choice of expression, if that's really what it says. At least, IMO it is. And perhaps I owe the OP a second apology - as it was probably my instinctive belief that Digita would not actually use such labelling that made me think the whole post was Trumpian.

Sad.

Even so, I'd've thought Digita's inbuilt 'help' functionality would've explained it better.

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Replying to Tax Dragon:
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By Hugo Fair
21st May 2021 15:07

In the spirit of the occasional musical sub-genre on here ... https://www.youtube.com/watch?v=w13yJw2O2OA

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By ireallyshouldknowthisbut
21st May 2021 11:23

Not sure what the fuss is about.

Seems like exact sort of question that those of us without a detailed knowledge of every tax act can get confused about.

My first thought is "hang on, if its not for the purposes of a trade, is your client completely stuffed?" ............. and would then need to look it up if it was me seeing this for the first time.

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Red Leader
By Red Leader
21st May 2021 11:31

HS340?

You may be able to claim relief for interest paid or for alternative finance payments where the loan or alternative finance arrangement is used to:
- buy ordinary shares in, or lend money to, a close company in which you own more than 5% of the ordinary share capital on your own or with associates;
- buy ordinary shares in, or lend money to, a close company in which you own any part of the share capital and work for the greater part of your time in the management and conduct of the company’s business, or that of an associated company.

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