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How do I get interest relief on a personal loan

Many people do now know that it is allowable to claim tax relief against a self assessment on interest suffered when the individual has taken out a personal loan, invested the loan into a company. For example, Peter borrowed £1 million and pay £80,000 interest, to invest in a LTD company.

 

Peter then lends his borrowed funds to his property company and its properties also yield a rental profit of £70,000. Corporation tax at 22% comes to £15,400.

 

Peter can claim interest relief for £80,000 interest expense on the personal loan As he has borrowed money to invest in his personal company, the interest payable on his borrowings is qualifying interest for which he can claim a tax deduction (up to the lower of his borrowing and his investment in the company) on his personal tax return.  This will produce a tax repayment of £32,000 (£80,000 x 40%). Peter and his company receive an overall tax refund of £16,600 (£32,000 – £15,400). This is regardless of whether the company pays him interest on his investment in the company, but if it does, he must disclose the interest income on his tax return and a deduction on this company return – ideally there is no point of charging interest on the loan.

 

It important to note that this should be a loan (whether from a third party or bank etc) and not an overdraft. If it is a bank loan then the bank will provide, on request, a certificate showing the interest paid and that will substantiate the deduction that you claim in the self assessment return. The deduction is claimed in box 5 on page 2 of the SA101 form.

 

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