Deduction of interest against property income ― corporation tax rules

Produced by Tolley
Deduction of interest against property income ― corporation tax rules

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Deduction of interest against property income ― corporation tax rules
  • Tax relief for interest on property acquisitions ― overview
  • Capitalised interest
  • Restrictions on the deductibility of interest costs for companies
  • Transfer pricing

Tax relief for interest on property acquisitions ― overview

Typically, the acquisition of a property by property developers or property investors will be financed by a loan (or other form of debt). It will often be crucial for the buyer to obtain any available tax deductions for the financing costs.

For companies, financing costs such as interest payments fall under the loan relationship rules. There is, then, a distinction between trading and non-trading loan relationships. As the names suggest, generally speaking, a trading loan relationship will arise where a borrower has entered into the relationship to provide funding for its trade; otherwise, the relationship will be a non-trading loan relationship. For more information on loan relationships, see the What is a loan relationship? guidance note.

For a property developer, finance will normally be required to some degree for a property acquisition and / or the development work itself. In this situation, the loan interest will be regarded as a trading loan relationship. CTA 2009, s 297(3) provides that trading loan relationship debits are treated as expenses of the trade and are therefore taken into account in computing the profits or losses of the trade for that period. CTA 2009, s 297(4) makes it clear that the loan relationship

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