If I put £100,000 as working capital into a Spanish company, can this company provide £100,000 to my wife and myself as a personal loan at 6% per annum for a buy-to-let property in the UK? Can I offset the interest amount against the rental amount received from the property?
Arthur Weller replies:
The company can certainly lend you the money. For the interest to be allowable against the rental income, see www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2110 that this is allowable if the rate is a commercial rate of interest, made on a normal commercial basis. There are rules for a close company lending money to a participator (see www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61500), but a company not resident in the UK cannot be a close company for these purposes (see www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60105). However, it is not clear to me whether this Spanish company is subject to UK corporation tax (e.g. is it centrally managed and controlled in the UK: see www.gov.uk/hmrc-internal-manuals/international-manual/intm120060)?
This question was first printed in Tax Insider in July 2017.