Loans made to your company – a tax planning opportunity.

May. 9, 2017, 11:00am

Are you aware that, in certain circumstances, you are able to obtain loan interest relief on borrowings used to finance your company?

As well as relief for interest paid on loans to acquire shares in certain companies, relief can also be available in respect of borrowings used to lend money to certain companies. In broad terms, the borrower must either own more than 5% of the ordinary share capital of the company (either alone or with his associates) or own some of the share capital and spend the greater part of his time in the actual management or conduct of the business. The company must be ‘close’ and exist for carrying on a trade, for letting property to unconnected parties or holding shares in or making loans to other companies meeting the descriptions in the previous sentence.

There is a potential trap to avoid. If the loan is to acquire property and if instead of lending money to the company to acquire the property, you buy the property yourself for use by the company then you will be carrying on a property business and will only be able to claim interest relief to the extent that it is covered by rental income received by the company if the rents are less than open market rents.  In this situation of course the new rules regarding interest relief restrictions should also be considered.

If you have a tax query, why not contact contact us to discuss it. Our team has a wealth of experience and would love to hear from you.


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