Tax Relief on BTL Private Loan

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    Tax Relief on BTL Private Loan

    Following a long delay in obtaining a remortgage on a small block of flats I own, it was decided between my sons and myself to pay off the existing lender with a substantial amount I had in savings and my two sons joint savings of £120K.......To protect my son's investment, I did think they could have a share in the property but was told this could incur them paying stamp duty and me CGT as it would require being recorded at the Land Registry.
    Another option would be to have a loan agreement drawn up where I pay them a yearly percentage interest on their loan. Now I'm mortgage free I obviously can't claim tax relief on interest payments but could I on the interest payments paid to my sons?....any other suggestions would be welcome.

    Thanks

    #2
    Yes, but the interest would be taxable income for your sons.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Thank you JP that's what I thought.....my sons did have a concern that should the loan still be in place on my demise, it wouldn't form part of my estate and be subject to inheritance tax but I'm assuming the loan agreement would cover that.

      Comment


        #4
        The loan liability would be part of your estate.
        Same as any other loan.
        It would reduce the value of your estate for IHT purposes.

        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          Note that, unless you can prove that interest was paid at the market rate, you should do further research on the taxation rules. Some transactions done other that at market value can result in them being taxed as though they were done at market prices. I haven't got time to check whether this is one of them, but if you are not paying full market rate interest, you should do so. Whether or not the transaction was with a close relative can affect this.

          Comment


            #6
            £120K deposit left in the bank will not earn much than 1.0 % return.

            but if you went to the bank to ask for a temporary £120K overdraft , you may be charged 4-5%

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              #7
              My sons have agreed to loan me £120K reviewed yearly with an interest of 2% p.a......I've been told by my accountant I should deduct 20% from quarterly interest payments and forward to HMRC but my son's accountant has said that payments should be paid gross and form part of their yearly tax return.
              I think my accountant is correct but would appreciate others take on this.

              Comment


                #8
                Do you live outside the UK?
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  Hi JP....My sons and I live in the UK.

                  Comment


                    #10
                    I think your accountant is wrong, then.

                    Your sons are liable for the tax on the interest, which is income.
                    HMRC will probably start to ask for it in advance once they've declared it once (as a general policy).

                    I don't see why anyone should suggest that you withhold it and pay it for them.
                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #11
                      Thanks again JP, I get your point but that's what I was told.....Also, I read there were certain HMRC rules being proposed for Peer to Peer lending which may apply where the borrower is obliged to deduct 20% of the interest payment and pass it over to HMRC.

                      Comment


                        #12
                        Your accountant is probably right (that's what they're paid to be).
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment


                          #13
                          Thank you JP

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