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  • Tax

    How is a Castle Trust Equity Loan taxed ?

    Good Morning PT

    Has anyone got experience in relation to redeemed Castle Trust Equity Loans ? I'm trying to get a definitive answer on how these loans are viewed when it comes to taxation ? Is the profit share payable to Castle Trust essentially rolled up interest and therefore only allowable as a finance cost in the Tax Year the loan is redeemed, or could it be used to offset CGT from the property sale ?

    All thoughts welcome !

    Thanks

    Andy

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    Did they take an interest in the property My understanding is that these loans have an interest rate which is price dependent on property value changes. This is a finance cost, particularly as there is a floor.

    You should be able to accrue the finance cost each year based on a sensible estimate (and disclose that you are using traditional accounting methods and estimates).

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    Tax advisor and mortgage broker

    stuart@johnsonsca.com

    02039077022


    Thank you for the reply.

    The company take second charge behind the primary mortgage. The profit share taken by them on redemption of the loan or sale of the property is 40% of the uplifted value of the 20% of equity loaned. It would therefore not be easy to estimate a yearly finance cost as it's extremely subjective in relation to any rise in the house price.

    Obviously as any finance cost are now subject to Sec 24 interest relief restrictions then it would be preferable to discount the profit share taken by the company from CGT allowable expenses.

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    Its a loan with a variable interest rate. Its an income tax matter not a CGT matter. It's fairly clear cut. Sorry.

    You can use an estimate if you wish (however you can so long as its reasonable) and that will help you with s24 as it is not fully applicable yet.

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    Tax advisor and mortgage broker

    stuart@johnsonsca.com

    02039077022


    Thanks, looks like it's in my interest to redeem them asap then, whilst there's still some relief available !

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    Yes possibly. Although with prices being where they are it may be cheaper to pay the "interest" and suffer the tax. Worth consider though i agree. Give me a shout if you need any remortgage help.

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    Tax advisor and mortgage broker

    stuart@johnsonsca.com

    02039077022


    That's also true ! Thanks ref the remortgage offer Smile

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