Question:
You have previously stated that the interest on family loans can be deducted for income tax purposes. I am British, but my wife's family is Turkish and live in Turkey. If I have a family loan from them for purchasing a UK property, can they set the interest rate based on Turkish rates as their money comes from Turkey, or must they use British rates as the money is going to be used in UK?
Arthur Weller replies:
They can set the interest rate at any level they want to, but the question is whether HMRC will allow the interest you are paying against your rental income as an allowable expense for you. If you look at www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2110 you can see that HMRC will only accept interest that is paid at a commercial rate, but anything over and above this they will not accept.
