Financing investment in UK real estate—deductibility of interest
Financing investment in UK real estate—deductibility of interest

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Financing investment in UK real estate—deductibility of interest
  • Interest deductibility for corporation tax payers
  • What constitutes a loan relationship
  • Interest deductibility under loan relationships regime
  • Example—corporation tax payer
  • Restrictions on interest deductibility for corporation tax payers
  • Interest deductibility for income tax payers—acquisition finance
  • Example
  • Restrictions on interest deductibility for income tax payers
  • Interest deductibility for income tax payers—re-financing UK real estate
  • More...

This Practice Note covers the extent to which interest expenditure is deductible for income tax payers and corporation tax payers investing in UK real estate. The tax treatment of interest payments for dealers in UK real estate is outside the scope of this Practice Note.

A typical real estate investment involves a taxpayer acquiring property with a view to holding it for a relatively prolonged period of time and earning income from renting out the property to tenants. Where, for example, property is acquired for re-development with a view to selling it at a profit, this is likely to amount to trading (or dealing) in real estate rather than investment. For more details, see Practice Note: Dealing in property or property investment?

As a general rule, interest expenditure on debt to finance a UK property business is only deductible (if at all) in computing income profits (ie profits derived from rental income) and is not deductible in computing a capital gain upon disposal of property.

The deductibility of interest payments depends upon the tax profile of the taxpayer invested in UK real estate and, particularly, whether that taxpayer is subject to:

  1. corporation tax, or

  2. income tax

Investors in UK property subject to corporation tax are UK tax resident companies, which are subject to UK corporation tax on their income profits and gains (for details of applicable rates of

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