CGT - loan interest

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bgengine

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Hi,
I've invested as a shareholder in comercial property. The investment was financed by € 50,000 'interest only' loan. At the end of the investment period when the property is sold I hope to pay off the loan principle and whats left is then profit - which is subject to CGT.
My question, can I offset the interest I pay on serviceing the loan for the investment period against CGT ?

The way I see it, while the share of the proprety is worth €50,000 it actually cost me €50k + loan interest. does nayone know the answer to this ?
thanks
 
Not to my knowledge. Only expenses incurred in the course of sale or improving/extending the property, and of course the purchase price, are allowable as costs against the selling price.
 
As far as my (non-expert) knowledge extends you cannot deduct the interest for CGT purposes.
What is the exact structure, the company one presumes is getting the benefit of an interest deduction against the rents it receives. Do you receive a dividend/interest from the investment company, you could probably set off your loan interest against such interest received (if it can be proven to be linked).
 
The structure is as follows: A group of investers ( Myself and others ) come together with a % of funds ( My €50k plus others) and form a company. The company then get a further financial backing in the form of a bank loan. The Total funds ( My Investment + others plus the Company's bank loan) are put together to purchase a property and and then lease to would be tenants.
All proceeds from the rents are not returned to investors/ share holders but put towards paying off the company's bank loan plus day-to-day running cost of the property. At a time in the future the property will be sold and hopefully it's value will have appreciated enough to fully repay the Company's bank loan, then return the investors investments with profits.

Whatever the structure, my cost of purchaseing the share is €50k + interest I pay on the loan.
My net gain is 'Property profit' - (50k + loan interest)
Then CGT calculated on Net gain

would this be correct ?
 
I don't think interest is an allowable cost for CGT purposes. Maybe someone else can clarify?
 
Interest is NEVER an allowable cost for CGT purposes for individuals.

The structure you've used to invest in the commercial property does not appear to be very tax efficient mainly because of a double hit to capital gains tax. The company has to pay 20% CGT when it sells the property and you separately have to pay 20% on the uplift in the value of your shares.

Also the company must pay 25% corporation tax on its profit rent (not the 12.5% rate which is for trading income). A further surcharge (additional corporation tax) is also payable if the profits of the company are not distributed within 18 months of the accounting period end. These 2 points may not be relevant if there is no "profit rent" (ie, rental income is matched by interest and other expenses).

Is the property definitely owned by a "company" rather than a partnership/co-ownership? If it was a partnership/co-ownership your interest is tax deductible against rental income and there is no double charge to CGT. Did you get any professional advice before structuring the investment?
 
Hi nhm001,

All rent income will be matched by interest and other expenses.

I must read the documentation again to clarify the structure and look at the company CGT again and i'll let you know.

Either way, this Investment structure had been predetermined and then offered to potential investors. Then on the sale of the property and payment of all taxes, the proposed return to the investors is quite competive ( but is then subject to CGT)

I guess my question is simply can I offset the interest I pay on my loan against the CGT
-After all, my cost of the investment is €50k + interest.
My actual Capital gain is is the Return from sale - (€50 + interest) ?
 
bgengine said:
I guess my question is simply can I offset the interest I pay on my loan against the CGT
-After all, my cost of the investment is €50k + interest.
My actual Capital gain is is the Return from sale - (€50 + interest) ?
Click to expand...

But you actually paid €50k for the investment, the interest is paid to the lender, not the seller.

The interest is allowable as an expense against the annual rental income when computing income/corporation tax, but not any capital gain.
 
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