Offset Interest

[Vanilla Slice]

A client has an "offset" business mortgage of c£300k with Woolwich with a rate of .98%. This is £200k business mortgage and £100k private mortgage. The current monthly payment is £242, but only £149 is shown on the statement. The difference is the "offset" (£x,000 @ x%).

Woolwich won't (can't) supply a breakdown of the interest credited to the account and claim that no certificate of tax deduction is necessary as no interest is actually paid.
I can apportion the net interest (2/3rds) for the accounts charge and include the (estimated) net interest on the tax return, but I'm sure this is wrong!

Any other suggestions?

[Incredulum]

I'm not sure I understand you.

Of course there is no cert. tax deducted - that's the whole point of an offset mortgage. There is no interest received. Think of it as being like an overdraft; If you have a 3k overdraft and pay in 1k, then the overdraft interest is based on 2k. As for your question:


I take it that the client is an individual who is a sole trader.

There is no separation between "business" and "self" for a sole trader.

Business is funded by a 200k loan secured on individual's residence.

Additionally, there is further debt secured on the residence. The amount of this further debt varies according to what spare cash the individual may possess. (That this spare cash is generated by his business must be irrelevant; we cannot tell what money is "his" and what is of "his businesses" as firstly money is fungible and secondly "he" and "his business" are indivisible.)

So long as the total loan is in excess of 200k, interest on 200k is deductible. To the extent debt drops below this, actual interest is deductible.

By my calcuation 300k x .98% = £242ish p.a. So clearly deductible interest is the lower of £242*200/300 = £163, and actual interest paid.