HS340 Interest and Alternative Financing Payments Eligible for Relief on Eligible Loans and Alternative Financing Mechanisms (2022)
This checklist gives you information to help you complete box 5 under the heading “Other tax relief” on page Ai 2 of the additional information pages.
1. Eligible loans and alternative financing mechanisms
Tax relief is available for interest on loans when the borrowed money is used for certain specific purposes.
You may also seek relief for alternative financing payments made under a qualifying alternative financing arrangement on the same basis as a person seeking relief for interest paid on a loan.
You can request relief for interest paid or for alternative financing payments when the loan or alternative financing arrangement is used to:
- buy ordinary shares or lend money to a close company of which you hold alone or with partners more than 5% of the ordinary share capital
- buy common stock or lend money to a related company in which you own part of the share capital and devote most of your time to managing and conducting the affairs of the company or an associated company
- acquire ordinary share capital in an employee-controlled company if you are a full-time employee — we consider you a full-time employee if you work most of your time as a director or employee of the company or a subsidiary in which the company holds a 51% or more interest
- acquire a share or shares of a cooperative or lend money to a cooperative that is used wholly and exclusively for the purposes of its business
- acquire an interest in a business or professional partnership (including a limited liability partnership incorporated under the Limited Liability Companies Act 2000, other than an investment limited partnership)
- to provide a partnership, including a limited liability company, with funds in the form of capital or bonus or cash advance, where the money paid or advanced is entirely used for the activities of the partnership – if the partnership is a property rental company, find more information in the residential real estate finance charge restriction section
- purchase equipment or machinery to be used in the course of your work for your employer or by a partnership (unless you have already claimed the interest as a business expense) – the relief is not available only if you, or the partnership, were entitled to claim capital cost allowances on the item or items in question — if the equipment or machinery was used only in part for your employment, or only partly for the business of the general partnership, only the commercial proportion of loan interest or alternative financing payments qualify for relief)
You cannot claim interest relief on overdrafts or credit cards.
If you are unsure whether you can claim relief for interest paid or alternative finance payments, ask HMRC or your tax adviser.
1.1 Residential Property Finance Fee Restriction
If you are claiming tax relief for interest payable on a loan or alternative financing mechanism to provide funds to a partnership, the interest relief is limited to the extent that the partnership uses those funds for any part of its real estate business that consists of residential properties.
Where these funds are used for residential property, for the tax year April 6, 2021 to April 5, 2022, you cannot claim relief for the cost of obtaining a loan or alternative financing , or interest on such loan or alternative financing payments. This will be used to calculate a reduction in your income tax in box 12.
For more information on restricting financing costs for residential properties, see Changes to Tax Relief for Homeowners.
For more information on what is meant by residential property, see the Property Revenue Handbook.
2. Limitation of income tax relief
The income tax relief limit limits the total amount of interest relief on qualifying loans and certain other relief each year to the greater of £50,000 and 25% of ‘adjusted total income’.
For more information on the income tax relief limit, read Help Sheet 204 Income Tax Relief Limit.
3. Request relief
You must ensure that you obtain (and keep) from your lender a certificate of interest or alternative financing payments that you have paid during the year. We can ask to see it.
4. Advantageous loan interest
If you receive a qualifying low-interest or interest-free loan from your employer, you can also claim relief for any taxable benefit to you. For more information, see Expenses and benefits: employee loans or ask HMRC or your tax adviser.
Get help and advice with the self-assessment.