A. 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 instead of lending money to the company to acquire property your client buys the property himself for use by the company then he 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 the Tax Advice Line on 0844 892 2470 to discuss it. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.
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