Acquire assets and borrow money tax efficiently

Claim loan interest against tax

Guide

Interest paid on loans taken out by businesses is a deductible expense from your final profit or loss figure when your tax bill is calculated. The loan interest can only be deducted from profits if the loan is exclusively for a business purpose or a property letting if it is part of your business premises.

Interest on overdrafts and credit cards can be treated as a deductible expense for calculating the profit for tax only if the overdraft or credit cards are used for business purposes. If you are a sole trader or part of a partnership and you also use the overdraft or credit cards for personal use, then you cannot claim interest payments as a business expense.

In the case of an individual, you may also be able to claim tax relief against income tax for interest paid on a loan if the loan was a qualifying loan, as defined by HM Revenue & Customs (HMRC).

Qualifying loans include those used:

  • to buy shares in or to lend money to a business in which you own more than 5 per cent of the shares
  • to buy shares in a limited company in which you work full time
  • to buy shares in or lend money for business purposes to a partnership

There are conditions attached to such qualifying loans:

  • the business must be a close company - where five or fewer directors or shareholders control the company
  • the lender must own more than 5 per cent of the shares or work as part of the management