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Hi Sir,
Based on my understanding interest on a loan to purchase the property is allowable deduction from the property income. Could you please explain why interest on a loan to purchase the property in the example below is not deducted?
Office building was purchased by Mice Ltd on 01/01/2015 and it will be empty until 31/03/2015. The building is to be let from 01/04/2015 at a monthly rate of 640, and on 15/03/2015 Mice Ltd received 3 monthly rent in advance. on 01/01/2015 Mice Ltd paid insurance of 480 in respect of this property for the year ended 31/12/2015 and during February 2015 spent 680 on advertising for tenants. Mice Ltd paid loan interest of 1,800 in respect of the period 01/01/2015 to 31/03/2015 on a loan that was taken out to purchase this property.
Solution:
property rent accrued: Nil
repairs: 680
Insurance: 480 * 3/12=120
Loan interest Nilinterest on a loan to purchase the property is set off under the loan relationship rules. What does this mean?
thank you in advance.
Interest payable by an individual on a property purchased for purposes of letting would be deducted from the property income to which it relates. In this question however, you are dealing with interest payable by a COMPANY and in corporation tax interest payable on a non trading loan, for example on a let property, is treated as a deduction from the interest income assessment. Interest payable on a trading loan is deducted from trading profits – these are the loan relationship rules!
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