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Claiming Loan Interest Relief

Accurate records could save you tax ...

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We may not be at the end of the tax year, but many people are keeping an eye on their potential tax returns to ensure they fully claim the tax reliefs available ...

If you keep accurate records, you can save tax when claiming loan interest relief!

If you keep accurate records, you can save tax when claiming loan interest relief!

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This is particularly important with loan interest since the tax relief available will depend on the purpose of the loan.

These are summarised below:

  • Buy to let properties

    As I am sure you are aware, since April 2017, the system of calculating tax liabilities on rental income has changed, and by April 2020, a buy-to-let landlord may not be able to deduct their costs of finance from rental income to reduce their tax bill.

    Instead, landlords will be given a completely new tax credit, which is less generous than the current regime, set at a maximum of 20% of the finance costs, but the reality could be a lot less than this.

  • Furnished holidays letting/serviced accommodation

    Compare the position above to that of serviced accommodation that satisfies the furnished holiday letting rules. In this case, the tax rules are a lot more favourable and loan interest relief continues to be allowed in full.

    Where properties move between the two different regimes, the loan interest relief will be required to be apportioned on a just and reasonable basis.

  • Borrowing to acquire shares or lend to a close company

    With many moving to acquire buy-to-let properties through a limited company, they may decide to leverage their existing portfolio and lend that money to the new limited company.

    If this is the case, in simple terms, as long as the company is 'close', i.e. it is controlled by five or fewer shareholders and the investor owns more than 5% of the shares in the company, loan interest relief will be allowable in full against the investors' general income. This is known as 'qualifying loan interest'.

With the tax regimes on serviced accommodation and qualifying loan interest being a lot more favourable, you can see that where you are borrowing against buy-to-let properties (or even your main residence) to invest in either of these, keeping good records is going to save you tax.

"Don't forget that the loan restriction on buy-to-let properties increases to 100% on 6th April 2020!"

If you'd like to find out more about loan interest relief then do give me a call on 01908 774323 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.