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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 8118
Experience:  FCCA - over 40 years experience as a qualified accountant (UK based Practitioner)
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Some years ago my wife and I lent a relative some money to

Customer Question

Hi. Some years ago my wife and I lent a relative some money to buy a house and she is about to repay with agreed interest of about £12,800. I pay higher rate tax and my wife does not pay tax. We are both in our 70s and retired. What is the tax situation on the interest?
JA: Have you talked to a tax professional about this?
Customer: No
JA: Is there anything else the Accountant should know before I connect you? Rest assured that they'll be able to help you.
Customer: We intend to replace the loan with a new larger one because the relative is downsizing and needs to cover her costs.
Submitted: 14 days ago.
Category: Tax
Expert:  taxadvisor.uk replied 14 days ago.

Hello and welcome to JustAnswer. I’mCustomer a UK qualified accountant. Reviewing your question and will respond to you shortly.
Many thanks

Expert:  taxadvisor.uk replied 14 days ago.

Thank you for your question.

Interest to be received will be chargeable to income tax at your mariginal tax rate. Interest earned on funds held in joint accounts will be deemed 50:50 unless you can substantiate the fact the funds were given by your wife our of her savings.

There is useful information on how interest will be taxed here

https://www.gov.uk/apply-tax-free-interest-on-savings

My aim is to give you a professional service. I hope this is helpful and answers your question.

If you need more assistance, please use the reply box below and let me know. It has been my pleasure to assist you with your question.

Customer: replied 14 days ago.
Thank you. The interest was earned (but payment deferred) over a number of years, is it possible to spread it over these years for tax purposes
Customer: replied 14 days ago.
No thank you. I will talk direct to HMRC
Expert:  taxadvisor.uk replied 14 days ago.

The basis of recognising interest income is on the receipt basis, unlike the accrual basis for a business source of income. This is laid out in s27 of Income Tax Act 1967. Interest counts as income for tax purposes on the date it is credited to your account.

I hope this is helpful and answers your question.