Loan provides material interest

The taxpayer was a director and shareholder of Andrew Pinchin Architects Ltd and a director of Vanfame Ltd.

In 2005 he loaned £100 000 to Vanfame. To do so he had to increase the mortgage on his house.

Vanfame paid the taxpayer interest on the sum which equated to the interest the taxpayer had to pay on his mortgage.

He disclosed the receipt of interest from Vanfame in his tax returns but tried to claim relief in respect of the interest he paid to the bank in respect of his loan.

HMRC denied relief on the ground that it would be due only if the two companies were associated and the taxpayer had a material interest in respect of Vanfame.

The First-tier Tribunal looked at TA 1988 s 360A and s 416 and found the companies were...