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October 12th 2018

Tax relief for interest on qualifying loans

Business owners often borrow money in order to help fund their business. The interest that is charged on such a loan (or alternative finance arrangement) can, in many circumstances, be offset against taxable income.

Relief may be available where the loan 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 business;
  • acquire an interest in a trading partnership (including LLP's)
  • provide a partnership with funds by way of capital or premium or lending money, where the money is used wholly for the partnership's business
  • buy equipment or machinery for use in your work for your employer, or by a partnership
  • buy shares in, or lend money to, a cooperative which is used wholly and exclusively for its business
  • acquire ordinary share capital in an employee-controlled company if you are a full-time employee

The amount of interest eligible for relief is limited in any tax year to the greater of £50,000 and 25% of "adjusted total income".

Relief is normally claimed through the taxpayer's Self Assessment return and evidence of the interest incurred (e.g. interest certificates) should be retained.

HMRC will not admit claims for relief for interest on overdrafts or credit cards.

If you think you might be eligible to claim relief, contact our tax team today.

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