Family loan & rental income tax liability

floridav

I currently have an interest only loan from a family member and no mortgage. I make interest payments once a month.

I will be moving out of the property next year and will be letting it out. Firstly, will the interest i'm paying my family member count as an allowable expense in so far as my income tax liability (for the rental income)? The loan is not secured on the property and i'm not sure if that makes any difference.

Secondly, the family member who has provided the loan has avoided income tax on these interest payments to date by claiming that the monthly payment he receives is capital rather than interest. However, if the interest payment is allowable for my income tax liability when i let the property next year, will i then need to declare this (including the name of the lender) in my tax return, therefore meaning that he can no longer claim it to be capital repayment and avoid the tax?

I apologise for the long thread. Any help would be much appreciated. Thank you.

Mark

Merlin_Accounts

"I currently have an interest only loan from a family member and no mortgage. I make interest payments once a month."

Your family member should be declaring this interest on their tax return, and accounting for tax on it, potentially, at 20%.

"I will be moving out of the property next year and will be letting it out. Firstly, will the interest i'm paying my family member count as an allowable expense in so far as my income tax liability (for the rental income)?"

You can indeed claim the interest as an expense of letting, but again I hope your family member is declaring the income!

"The loan is not secured on the property and i'm not sure if that makes any difference."

Makes no difference. The loan was for the purchase of the property; where it is secured has no bearing.

"Secondly, the family member who has provided the loan has avoided income tax on these interest payments to date by claiming that the monthly payment he receives is capital rather than interest."

Bit naughty that, to say the least! I think that maybe between you and your family member you are attempting to have your cake and eat it (at least that is how it appears). If you are paying interest then it should be declared; if it is merely repayment of a loan (not interest) you cant then claim it as a deduction from your lettings income!

"However, if the interest payment is allowable for my income tax liability when i let the property next year, will i then need to declare this (including the name of the lender) in my tax return, therefore meaning that he can no longer claim it to be capital repayment and avoid the tax?"

The purpose of this forum is to help people legitimately keep their taxes down, or at least help them make sure they are paying the right tax. I for one do not advocate tax evasion, which is in effect what you are seeking advice for !

"I apologise for the long thread. Any help would be much appreciated. Thank you."

Tax evasion is illegal, dont do it! - that is the best bit of "help" I can give!

Mark

johnllew

jimmo wrote: »

When you let the property you will be entitled to deduct the interest you pay in calculating your lettings profits.

[quote=Merlin_Accounts;15889995You can indeed claim the interest as an expense of letting, but again I hope your family member is declaring the income![/quote]
I cannot see where the OP has said what the purpose of the loan was. How have you deduced the interest is therefore allowable against the letting income?