Documents for Business
In excess of 1,000 customisable documents covering every conceivable business issue.Introduction to this document
Flow chart - tax relief for loan interest
An individual is entitled to tax relief against their general income for interest paid on loans or other advances (known as alternative finance) which are used for qualifying purposes. These are limited and subject to tough conditions.
Flow chart
The Flow Chart - Tax Relief for Loan Interest will guide you through the conditions for qualifying loans etc. to help you decide if you can claim tax relief for interest paid
Definitions for the flow chart:
- A material interest - the individual owns or can control more than 5% of the:
- ordinary share capital; or
- rights to the assets on a winding up.
- Associates - relatives, business partners and trustees of settlements established by the individual or their relative. Associates of associates, e.g. the director's brother's business partner, are not included. Aunts, uncles and in-laws are not included, neither are step relatives. Relatives include:
- spouse/civil partner
- parent
- grandparent
- children
- grandchildren; and
- brother or sister.
- A close company - any UK-resident company which is controlled by five or fewer participators, or any number of participators who are directors
- A participator - a person who has a share or interest in the capital or income of the company. This includes the right to:
- secure that income and/or assets are applied for their benefit; or
- participate in any distributions.
Loan creditors with a beneficial interest in the debt (excluding commercial and business loans) also have an interest in the company for these purposes.
Capped tax relief is the greater of £50,000 or 25% of an individual’s adjusted income for a tax year. Essentially, adjusted income for this purpose is taxable income less pension contributions and gift aid payments they have made.
