Pub Trade

JJH1969

I have a new client who has partially financed the purchase of a freehold pub through their parents remortgaging their property. Are the repayments tax deductible? Also they are planning to refurb before opening. has anyone got a client who has done this recently as I know the capital allowances are a minefield?

Gem7321

The repayments are not tax deductible.

Yes capital allowances can be a minefield, especially when buildings and integral features are concerned, but I'm afraid you will need to be more specific. Start here

JJH1969

The loan repayments are interest only and if an agreement is drawn up wouldn't this just be an arms length loan?

KernowAccountant

Presumably the loan on remortgage of mother and father's property was paid to them. They then made an onward loan to their offspring who is in turn paying interest on that (second) loan to mother and father which is equivalent to the interest they are paying the bank. I assume the bank is not aware of the onward loan to offspring.

As both loans and interest payments are equal I see no issues with commerciality.

In my view, the interest payments made by 'offspring' are deductible against trading income. The interest paid to mummy and daddy will be taxable in their hands and they will receive NO deduction for the interest they pay the bank - cracking method of creating a tax liability! Kinda like reverse tax evasion!

Of course, given the sparse facts by the OP my analysis may change if the circumstances re: the loans are not as I see them.

JJH1969

Yes thanks for the advice. I thought that was correct but clients quite often ask for the advice after they've put things in place don't they!! I have advised them of the issue on their parents. Presumably they have to fill in a quarterly CT61 too?

KernowAccountant

JJH1969 said:

Yes thanks for the advice. I thought that was correct but clients quite often ask for the advice after they've put things in place don't they!! I have advised them of the issue on their parents. Presumably they have to fill in a quarterly CT61 too?

There's a company involved?!?

Gem7321

Ah, you didn't state that it was interest only. But I agree with @KernowAccountant, providing all of the paperwork is drawn and the parents are charging interest in turn then I can't see a reason why the interest would not be deductible. But again I echo Kernow in that it is a bad case for the parents! As you now mention CT61s do the parents have an unmentioned company and it is actually the parents company that have borrowed? Or is it the parents themselves?