Readers' forum: Capital idea

20 October 2015

Issue: 4523 / Categories: Forum & Feedback

What are the tax implications of a repayment of capital and interest?

About 15 years ago my clients took out a new mortgage. Included in that loan they borrowed an extra £30 000 to lend to the wife’s parents to help them buy a holiday cottage in north Wales. This was done because the clients could obtain a better rate of interest than the parents. The plan was that the parents would pay my clients the additional interest on that capital each month. The capital itself of £30 000 would be repaid when the cottage was sold.

The monthly payments continued for the first few years but their frequency slowed and my clients have not received payment to cover the interest for many years. However they have kept track of the cost of this additional loan. The parents have now sold the cottage and are ready to return the £30 000 as well as the accrued interest ...

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