Are secured loans tax deductible?
Self-employed and considering a loan? Here's how it could affect your tax bill.
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Secured Loans & Tax: What You Need to Know
Secured loans are a useful way to unlock the value in your property or other assets. But if you're using one for home improvements, consolidating debt, or even funding a business, you might be wondering - can you claim anything back on your taxes? Let's dig into the reality of secured loan tax deductions in the UK.
What HMRC says about secured loans
Most secured loans taken out for personal reasons are not tax deductible in the UK. That includes:
- Home improvements
- Car purchases
- Debt consolidation
- Holidays or weddings
- Education costs (unless business-related)
In short: HMRC doesn't allow tax relief on personal interest payments, even if the loan is secured against your home.
When a secured loan can be tax deductible
If your secured loan is used for business or investments, you might be able to claim tax relief on the interest.
- Buy-to-let landlords: If you use a secured loan to invest in a rental property, the interest may be deductible against your rental income.
- Business owners: Secured loans used to fund business, premises, or assets can sometimes be claimed as an expense.
- Investments: If you're using secured funds to invest in stocks, shares, or other income-generating assets, the interest may count against investment profits - but only in certain cases.
In short: There are legitimate ways to claim back the interest on your loan if it's for business purposes - but get advice from your accountant before making claims, as misfiling can lead to penalties.
Summing up
If you're borrowing for personal reasons like home improvements or merging debts, you won't be able to claim the interest as a tax deduction. But if you're a landlord, investor, or business owner, and you're using the loan directly for your work or property, tax relief might be on the table. Just be sure your paperwork is in order, and consult a tax expert before claiming anything on your return.
Frequently Asked Questions: Secured Loans
Can I claim tax back on a secured loan for home improvements?
No, you can’t. Even if the improvements increase your property’s value, HMRC doesn’t allow you to claim back interest on loans used for personal renovations or upgrades. It's treated as a private expense, not a deductible cost.
Is interest on a secured loan for business tax deductible?
Yes, in most cases. If the loan is used entirely for business purposes - like buying equipment, expanding premises, or funding operations - the interest can often be claimed as a business expense. Keep clear records and ensure the loan isn't mixed with personal spending.
Do landlords get tax relief on secured loans?
Yes, landlords can usually claim tax relief on the interest on loans used for buying, refurbishing, or maintaining rental properties. But this relief is now limited to a basic rate tax credit of 20%, meaning landlords can no longer deduct the full interest from their rental income. This change applies to individual landlords, not companies or certain types of lettings.
Is a second charge mortgage tax deductible?
Only if it's for business or investment use. A second charge mortgage used to fund a buy-to-let property or business expansion could qualify for tax relief on the interest. If it's for home improvements or personal debt, no relief is available.
Should I speak to an accountant before claiming deductions?
Definitely. Tax laws often change, and what qualifies as a deductible expense depends heavily on context. An accountant can help you navigate the details and avoid making claims that could trigger an audit or penalty from HMRC.
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