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Remortgaging Commercial premises

Raising finance and interest relief

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Potential client has a hairdressing business.  She wants to remortgage the shop and use the funds to buy three residential properties under a limited company

How to get interest tax relief under the limited company ? Can she or her solictor draw up an agreement between herself and the Limited Company for the loan and interest ?

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By Paul Crowley
23rd Aug 2021 14:22

Why limited company?
But then I always say that on residential property held in a company.

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By sanjay100
23rd Aug 2021 14:59

Paul Crowley wrote:

Why limited company?
But then I always say that on residential property held in a company.

The director is a high rate tax payer

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By Hugo Fair
23rd Aug 2021 15:24

tail meet dog, dog meet tail ... now go off together and decide who is wagging who.

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paddle steamer
By DJKL
23rd Aug 2021 15:15

How does she propose to offset the interest she is going to be paying out on the remortgaged property against any interest she charges her company (CT61 issues as well may arise), presuming the owner of the hairdressing premises, who is raising the funding, is an individual not a company (Presume she is not a bank)?

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By sanjay100
23rd Aug 2021 16:28

Yes it is a long shot but posting this question just in case there was a way

Good point on CT61. Yes its the owner of the hairdressing business raising funding.

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By Paul Crowley
23rd Aug 2021 15:52

Justin would have a solution

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By sanjay100
23rd Aug 2021 16:29

Yes where is Justin when you need him.

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By Tax Dragon
23rd Aug 2021 16:39

Why does she want relief "under the limited company", rather than having it herself?

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By sanjay100
23rd Aug 2021 17:39

The rental properties would be under the Limited company. She is a high rate tax payer.

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By Paul Crowley
23rd Aug 2021 18:47

I think you miss the point
Borrowing money to lend to the company
Result Person gets tax relief.

Cannot undestand any point in trying to put that into company

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By DJKL
24th Aug 2021 01:20

Surely that is in doubt, does ITA 2007 s 393(3) not possibly cause an issue re tax relief on the interest paid by the individual given company's activities, or am I misinterpreting?

https://www.legislation.gov.uk/ukpga/2007/3/section/393

393Eligibility requirements for interest on loans within section 392
(1)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.
(2)The capital recovery condition is that in the period from the use of the loan to the payment of the interest the individual has not recovered any capital from the company, apart from any amount taken into account under section 406(2) (recovered capital that is treated as a repayment of the loan).
(3)The full-time working conditions are that—
(a)when the interest is paid the individual holds part of the ordinary share capital of the company, and
(b)in the period from the use of the loan to the payment of the interest the greater part of the individual's time has been spent in the actual management or conduct of the company or of an associated company of the company.
(4)The material interest conditions are that—
(a)when the interest is paid the individual has a material interest in the company (see section 394), and
(b)if the company exists wholly or mainly for the purpose of holding investments or other property, either—
(i)the condition in subsection (3)(b) is met, or
(ii)no property held by the company is used as a residence by the individual.

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By Tax Dragon
24th Aug 2021 03:44

DJKL wrote:

Am I misinterpreting?

Yes, s393(3) basically provides a definition. You appear to be reading the subsection as having independent effect, when in fact it has none.

Of course, the OP would have to consider the restrictions. For example, s387(3) might (very likely would) preclude relief under the chapter.

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Replying to Tax Dragon:
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By Paul Crowley
24th Aug 2021 09:41

Good job we have experts here
I merely looked on the HMRC website

The website on loans specifically said only allowed on trading partnerships but did not add the word trading to close company.

Never get involved with this as I never recommend a company for residential properties.
CGT and dividend tax and exit procedures

So to properly succeed it need the youtube versions that the youtubers say that 'your ordinary accountant will not understand'

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By DJKL
24th Aug 2021 09:54

Sorry, not following, surely the definition is important to permit relief for the interest paid? The loan is to a company re residential property letting (3 properties). we are not told what if anything else the company does. How does one qualify re 393(3)(b), time required re letting three residential properties is pretty limited?

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By Winnie Wiggleroom
23rd Aug 2021 16:56

To answer your specific question, the company gets tax relief on the interest it pays her, its a standard tax planning tool for a company to pay interest on a Directors Loan (or not depending on the situation)

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Replying to Winnie Wiggleroom:
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By DJKL
23rd Aug 2021 17:58

I would however add that the individual receiving said interest will possibly/likely be taxed on said income at their marginal tax rate .

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By David Ex
23rd Aug 2021 19:38

DJKL wrote:

I would however add that the individual receiving said interest will possibly/likely be taxed on said income at their marginal tax rate .

Think that’s right. Don’t think the Savings Allowance would be available on interest received from a connected company. Think I read that on here ages ago so may be wrong!

EDIT: Old post but, at the time, did seem OK.

https://www.accountingweb.co.uk/any-answers/personal-savings-allowance-i...

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By DJKL
24th Aug 2021 09:59

Given individual is higher rate it is not going to go that far covering interest on a loan to the company used to purchase three flats if it is available.

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By David Ex
24th Aug 2021 11:50

DJKL wrote:

Given individual is higher rate it is not going to go that far covering interest on a loan to the company used to purchase three flats if it is available.

True. I just wondered what the definitive answer was on the point.

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By Winnie Wiggleroom
24th Aug 2021 10:10

DJKL wrote:

I would however add that the individual receiving said interest will possibly/likely be taxed on said income at their marginal tax rate .

That wasnt the question in the OP was it - the only question asked was to how to get tax relief in the company, and the way to do that is to pay out interest.
Whether or not that works overall for tax is a different question, as is whether or not this should even be in a company in the first place which depends on facts we do not have.

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By DJKL
24th Aug 2021 10:24

The only question asked was possibly not the correct question that the OP ought to have asked.

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By David Ex
24th Aug 2021 11:54

DJKL wrote:

The only question asked was possibly not the correct question that the OP ought to have asked.

That’s so often true.

If someone asks “should I stick my finger in my right or left eye?”, I don’t think it’s unreasonable to suggest a more fundamental question might be more appropriate.

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