Loan interest

[kevincab]

Hi, I have some enquiries in regards of the below:

Background
• A Singapore resident ("SG") set up a BVI company ("Company") to hold a UK property.
• There is a loan agreement between the SG and the Company, which shows the SG will lend certain amount of money to the company to purchase the UK property and the Company will make the repayment of principal and interest to the SG every year
• The UK property is renting out and earning rental income

Questions
• Whether the loan interest is allowable for tax deduction in regards of earning rental income

Many thanks in advance.

[section 44]

is the lending on arm's length terms?

[King_Maker]

I assume the company is not UK resident?

Did 20% tax have to be deducted by the tenant from the rent?

Did 20% tax have to be deducted from the interest payments?

[kevincab]

Many thanks for the response.

1. The interest is in the arm's length

2. The company is a non resident company and it has joined the non resident landlord scheme so no tax needs to be withheld

3. No tax of the interest is withheld at the moment. Are there any forms that the company needs to submit for the withholding tax of the interest paid to the SG.

[section 44]

Are there any forms that the company needs to submit for the withholding tax of the interest paid to the SG.

Depends, does the interest have a UK source?

In view of this:

The interest is in the arm's length

Presumably the debt is secured on the UK property.

[King_Maker]

If deduction of Basic Rate Tax applies, it may be that the relevant DTA may specify a smaller rate of Withholding (e.g. 5%).

As the company is already in the NRL regime, you could contact HMRC - you would need to do so anyway, if (say) 5% is the correct amount to be deducted from the the interest payments. Or have such payments already been made Gross?