Beautiful tax

I have a client who took out a bank loan two years ago to invest £100 000 into his daughter’s beauty business. His daughter pays my client £8 000 a year interest on the loan which is exactly the same amount as the interest he pays to his bank.

My client then treats the interest received as income on his tax return but claims a full deduction on the interest paid on the loan which has been invested into the business.

However having read HMRC’s Help Sheet 340 on this subject I am not convinced he is entitled to claim this relief as he is not actually acquiring an equity interest in the business – his daughter trades as a sole trader. Am I correct?

My second query is that my client has suggested that instead of his daughter paying him interest of £8 000 per...