Tax relief on qualifying loans can be a valuable tool for business owners. Qualifying interest deductions on loans taken out for business purposes can reduce an individuals’ tax burdens and better manage cash flow.
Where an individual takes out a loan to buy shares in a ‘close company’, tax relief may be available on any interest they pay.
Broadly, a ‘close company’ is one that is controlled by five or fewer shareholders or any number of shareholders, all of whom are directors.
Tax relief is available when a personal loan is taken out by an individual that meets certain ‘qualifying’ conditions. The main circumstances include:
To qualify for relief, you’ll need to demonstrate that the loan was genuinely taken for business purposes. This may include retaining bank loan agreements, invoices, or other documents that verify the loan’s purpose and application.
The limit on income tax reliefs restricts the total amount of qualifying loan interest relief and certain other reliefs in each year to the greater of £50,000 and 25% of ‘adjusted total income’.
Relief will not be available where the individual who acquired the shares makes a claim for relief under the Enterprise Investment Scheme or the Social Investment Tax relief scheme.
Have questions about the changes reliefs and if you are eligible? At Arnold Hill, we have the expertise and experience to outline potential planning opportunities for owner managed and family run businesses to use debt in a tax efficient manner. Contact us today to see how we can help you!
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