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Claiming Interest on Business Investments

09 Aug 2012 7:00 PM | BKN (Administrator)

Book-keepers Question: One of my clients wants to buy a new business but the only way they can do that is to increase the mortgage on their house. Will the interest they pay on the extra mortgage be tax allowable for their business?

BKN Answer: In principle yes, but there are restrictions to prevent improper use of this tax relief. Further restrictions are also proposed from 6 April 2013. Interest paid on loans used to buy into a partnership or to buy shares in a closely controlled company, or lend to such a company are generally tax allowable. However, it would be best to have a separate loan for this business investment, as when your client repays any part of the mortgage the business part will be deemed to be reduced first. Your client will also need to hold at least 5% of the ordinary shares of the company and work for it for the greater part of their time.

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