Calculate corporation tax relief on business loan interest. Find your net cost of borrowing after tax deduction and compare loan vs equity financing.
Yes — interest paid on a loan taken out wholly and exclusively for business purposes is generally deductible against a company's profits for corporation tax purposes. For sole traders and partnerships, loan interest used for business purposes is deductible against trading income on the Self Assessment return. This makes business borrowing more cost-effective than personal borrowing.
Yes — the Corporate Interest Restriction (CIR) rules limit the amount of loan interest a large company can deduct. From 1 April 2017, companies in groups can deduct up to £2 million of net interest per year without restriction; above this, the deduction is capped at 30% of UK taxable EBITDA. Most small companies are unaffected by CIR.
With a 25% corporation tax rate, the effective after-tax interest cost is 75% of the nominal rate. A 6% business loan effectively costs 4.5% after corporation tax. This is the key reason debt financing is often preferred over equity for businesses — the cost is reduced by the CT rate, whereas dividend payments from equity are not deductible.
Yes — for property held in a limited company, all mortgage interest on buy-to-let properties is deductible against the company's rental profits at 25% corporation tax. This is a major reason many landlords have moved properties into companies since the 2017 changes that restricted individual landlords to a basic-rate tax credit (20%) on mortgage interest.
HMRC looks at whether the borrowing has a commercial purpose and the interest is paid on genuine arm's-length terms. Related party loans must be at a market rate (HMRC may challenge artificially low or high rates). The loan must be used for genuine business purposes — not to fund personal expenditure or to extract profit in a tax-advantaged way.