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Qualifying loan interest


Produced by a Tolley Personal Tax expert
Personal Tax
Guidance
tag-icon Tax Returns

Qualifying loan interest


Produced by a Tolley Personal Tax expert
Personal Tax
Guidance
tag-icon Tax Returns
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Interest paid on qualifying loans is deducted from the taxpayer’s total income (ie a Step 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, they may be required to deduct basic rate tax on this amount; it depends on whether the lender has a UK permanent establishment. See Simon’s Taxes A4.424.

Qualifying loan interest relief is included in the cap on unlimited income tax reliefs (see below).

What is a qualifying loan?

A qualifying loan is one where the capital amount has been used for a qualifying purpose.

The qualifying purposes are set out in the legislation:

  1. •

    investing in a close company

  2. •

    investing in a partnership

  3. •

    buying shares in an employee-controlled company

  4. •

    purchasing plant or machinery for use in employment

  5. •

    purchasing plant and machinery for use by the partnership

  6. •

    investing

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  • 20 Feb 2025 12:41

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