Loan interets - let property

[Kandy]

My client owns two investment properties jointly with his wife and one jointly with his wife and widowed mother. His share of the deposit in the property owned jointly with his wife was £55000 and that owned with his mother his share of the dep was £150000.Last year he raised a loan of £175000 secured on the property owned with his wife (original dep on this prop was £55000). The loan was used to buy an investment property jointly with his adult son, my client's share being 30%. Will he be allowed interest on the loan of £175000 against his share of total rents from all the properties?

[Instinctive]

I am not sure if it works that way.

I would suggest that your client has two separate letting businesses, one with his wife and the other with his wife and mother.

A loan normally belongs to a lettings business and not to an individual. The loan interest is an expense of the business and is deducted in arriving at the profits of the business. It is the profit, after loan interest, which is then apportioned between the joint-owners.

I suppose he could count £55,000 as a loan of one business and £95,000 as a loan of the other business.

Ramnik

[King_Maker]

It depends if any/all the jointly owned properties amount to a partnership(s) - possible but unlikely.

If so, your client has only one rental business with the taxable profit being his share derived from the 3 properties. I see no reason why the interest on the £175,000 should not be deductible.

There is no reason why his son need benefit from the loan interest - if that is the thrust of your question.

[Kandy]

Thank you Ramnik, I am inclined to agree with your suggestion that there are two separate letting business and that the loan interest can be claimed against each on the same principle as bank loan replacing credit balance on capital account. I assume that one would need to prepare two separate sets of accounts although I take it that only one land and property supplementary page need be completed combining the two figures. On this basis any loss on one business can be set off against profit from the second letting business.
As for the reply from King_Maker I do not feel that the business could be considered as a partnership and yes I agree that on that basis the claim would be simplified.