The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
Interest paid on qualifying loans is deducted from the taxpayer’s total income (ie aStep 2 deduction from total income). See the Proforma income tax calculation guidance note.
Interest on qualifying loans is usually paid gross by the individual borrower; tax is not withheld at source. This includes interest payments made by the individual to peer-to-peer lenders. However, where the individual pays interest to an overseas lender, he may be required to deduct basic rate tax on this amount; it will depend on whether the lender has aUK permanent establishment. See Simon’s Taxes A4.424 (subscription sensitive).
Qualifying loan interest relief is included in the cap on unlimited income tax reliefs (see below).
A qualifying loan is one where the capital amount has been used for aqualifying purpose.
The qualifying purposes are set out in the legislation:
In addition to the qualifying purpose, the loan itself must not be an overdrawn account or money withdrawn on acredit card.
For further reading, see Simon’s Taxes E1.820 (subscription sensitive).
The more common examples of qualifying loans are considered below.
A loan taken out by an individual to
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