Double tax relief on loans

Every business aims to achieve maximum tax relief on borrowings.

There is a difference between the rules for tax relief on loans between income and corporation tax and IHT. For income and corporation tax, relief is given for interest paid on borrowings incurred for the purpose of a trade including a rental business. Accordingly, relief on interest is given based on the purpose of the loan. However, for IHT purposes, a loan relates to the value of the assets on which it is secured or charged.

 

Interestingly this means that a loan can be used for the purpose of purchasing one asset and secured against a totally different one. Clearly, it may well be good planning for IHT purposes to secure a loan on assets which do not qualify for any IHT reliefs and this can be done without affecting the income or corporation tax relief.

This looks like a perfect position but, as with most things in tax, “the devil is the detail” and advice must be sought to review all aspects before the planning is undertaken.

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