Borrowing to invest?

[Del3D]

Hi all,

In the future, I may consider borrowing to invest in high-yield dividend shares using a loan secured on my property. I am aware and comfortable with the risks involved with such an investment style (I currently own a diversified equity portfolio with a capital value similar to my outstanding mortgage. I have a very stable income of which I currently invest more than twice my proposed monthly loan repayment).

The rationale for borrowing against my property is to minimise interest rates and my belief is that it is (will be) possible to cover loan (interest + capital) repayments at current dividend yield rates on a well diversified set of equity classes (i.e. not just banks!). The capital value of the investment does not concern me too much, provided that the dividend yield is maintained (i.e. stocks with a low payout ratio).

Now for the question (yes, a tax one) - Can interest payments in this configuration be offset against dividend income for the purpose of taxation?

I am aware that you can offset interest payments against rental income on investment property, but is there any comparable structure by which you can do this with equities?

Thanks in advance,

 

[Brendan Burgess]

No, you can't set interest paid on a loan against dividend income.

There isn't a reasonable configuration either. If the amounts were very large you could set up a unit-linked fund wrapper and borrow within the fund. You would pay 23% exit tax on the entire gains in the fund.

Someone will inevitably suggest that you could set up a company to buy the shares but that will lead to double taxation.

Brendan