Income tax on waived interest receipts

[robertmlaws]

I wonder if somone can advise me on the tax implications (income tax and possibly inhereitence tax) if I waive some interest payments that are due to me.

As part of my divorce agreement I loaned my exwife about £50,000 to enable her to have a larger house. The agreement says that interest at 1% over base will be payable once the youngest child reaches 21. The loan is registered as a charge on the house. (We were both advised independently by solicitors at the time).

The youngest child is coming up to 21.

I propose to informally waive the interest. She will pay nothing, although the debt will stand and the charge will remain on the house.


1) How would the tax authorities view this? Would I be liable for income tax on the interest even if I do not receive it? Would it could as a gift from me to her and thus have inheritance tax implications?


2) Should I ask a solicitor to arrange the waiver or is it enough for me to write to her and say that I waive it?


thank you for any advice you can offer,


Robert

[hashman]

I'm not 100% certain - but I think the waiver would not be effective for income tax purposes and that you would be potentially liable for tax thereon. [Section 371 ITTOIA 2005 says that the person liable for any tax is the person receiving OR ENTITLED TO THE INTEREST. But section 370 states that the full amount of interest arising in the tax year is charged. So it depends on whether the interest is regarded as arising or not despite the waiver.]

But perhaps you can get around this by amending the terms of the original agreement so that you are no longer entitled to interest from your child's 21st. It would not then 'arise'.

[robertmlaws]

Thank you, I understand what you mean. it sounds as if I need to do something more formal than simply not demand the money. regards, Robert