I1. Main residence in Jersey. Interest paid on loans held by ‘share transfer’
Tax relief will be granted on the interest paid subject to the restrictions in Article 90AA of the Income Tax Law.
I2. Loans used wholly and exclusively in a trade, business or vocation
If an individual or company can prove to the satisfaction of the Comptroller that all of the loan has been injected into a trade, business or vocation to continue to earn the profits of a trade, profession or vocation, and that none of it has been used for private and personal expenditure. Then the comptroller will grant tax relief as an expense incurred wholly and exclusively to earn the profits of the trade, profession or vocation.
However, where the loan has been used for a dual purpose (business and non business), tax relief will only be granted in respect of that part of the interest paid on the loan which is wholly and exclusively injected to earn the profits of the trade, profession or vocation.
I3. Management expenses and interest paid
Management expenses under Article 133 of the Income Tax Law relating to interest will be disallowed for private investment holding companies but will continue to be given for life assurance, ‘group holding’ and similar structures.
I4. Definition of an extension to a property – main residence and property let on a commercial basis
Extension simply means something being physically added onto the property, such as a conservatory, a garage or a porch. Interest paid on a loan which is used to refurbish the property does not qualify for tax relief, such as the installation of double glazing, a new fitted kitchen or a loft conversion where the roofline has not been extended.
I5. Loan used to acquire shares in an investment holding company whose sole asset consists of shares in a trading company
Historic tax concessions and practices
I6. Loan used to acquire shares in a property holding company whose sole asset consists of a property let on a commercial basis
From 1 January 2022, this concession only applies to interest payable on loans drawn down before 1 January 2022, and will continue to apply up to and including:
- the earlier year of assessment 2025
- repayment of the loans in question
- a change in the law
Where an individual or company takes out a loan to buy shares in a property holding company, and that company has as its sole asset land or buildings that are let commercially on open market terms, then tax relief on the interest paid will be allowed to the property holding company, on proof of the facts to the satisfaction of the Comptroller, as a deduction against the rents received by the property holding company.
Monies held on current account, whether interest bearing or not, and held for incidental purposes will be disregarded in determining the assets of the company. The Comptroller will be prepared to allow the property holding company relief for the interest paid on the loan as if it were interest within the provisions of Article 90AB, 90AD, 90AE and 90AF of the Income Tax Law.
I7. Individual paying interest on a loan used to purchase a former matrimonial home in Jersey
Where an individual separates from their spouse and the spouse and children remain in the former matrimonial home, interest tax relief will continue to be granted to that individual if they continue to pay interest on a loan to purchase the former matrimonial home, notwithstanding the fact that it is no longer their principal private residence.
If that individual then purchases another home with a new loan, they will also be granted interest tax relief on the new loan, subject to the restrictions in Article 90AA of the Income Tax Law.
I8. Private loan from a non resident used to purchase a main residence in Jersey
If an individual purchases a principal private residence with money loaned to them by a non-resident, interest tax relief will be granted subject to the restrictions in Article 90AA of the Income Tax Law, provided that written confirmation is received from the non-resident that they will:
- pay Jersey tax on the interest received at the standard rate of 20%
- pay that tax promptly after receiving the notice of assessment in September each year
- have no objection to the Comptroller informing the Jersey resident of any failure to meet the terms of the written confirmation for the purpose of withdrawing the interest tax relief concession extended to the Jersey resident
I9. Loan to acquire less than a controlling interest in a trading company
Historic tax concessions and practices
I10. Absence from main residence
In order for a taxpayer to receive tax relief on interest paid on a loan to purchase their main residence they must occupy that residence at the time the interest is paid. Article 90AA(3)(a) of the Income Tax Law states:
Paragraph (2) of this Article shall not apply unless:
- at the time the interest is paid, the dwelling-house is occupied by the person by whom the interest is payable as their only or main residence
There are occasions when an individual will not occupy their home, they may be on holiday or they may have to vacate the premises whilst extensive repairs are carried out following a fire or a flood. Interest tax relief will continue to be allowed under the provisions of Article 90AA of the Income Tax Law, despite the fact that the individual is not physically present in the house throughout the whole year of assessment. This is providing the Comptroller is satisfied that the property remains his main residence whilst it is not occupied.
Another circumstance where an individual may not be occupying their main residence is where they are seconded outside of the Island to work under a contract of employment abroad. The interest paid on the loan may be allowed under the provisions of Article 90AB of the Income Tax Law if the property is let on a commercial basis. If it is not let or is occupied on a rent free basis, the following may apply.
If the period of the secondment is such that the individual is absent from the Island for at least 1 complete calendar year they may, by concession, be regarded as either resident but not ordinarily resident or non resident during the period of his absence from the Island. In that event tax relief will be allowed on the interest paid under the provisions of Article 90AA of the Income Tax Law for the period 1 January to the date of departure and for the period date of return to 31 December. No tax relief will be allowed on the interest paid whilst the individual is absent from the Island on the ground that they are not occupying their main residence.
I11. Loan advanced by a director to a company to acquire a property to let on a commercial basis
An individual obtains a loan from a bank or from a person (subject to the conditions below) and advances a similar sum by way of an interest free loan to their company which acquires a property to let on a commercial basis.
If the interest charged on the loan is paid by the company then the interest paid will be allowed as a deduction from the rent received and taxed upon the company. In addition, the interest paid by the company will not represent a 'pecuniary liability' of the director.
The conditions in respect of a loan from a person are that the person making the loan is not connected with:
- the individual
- the company to whom the loan is advanced
For the purpose of this concession the definition of a connected person is in accordance with Article 3A of the Income Tax (Jersey) Law 1961.
It is a condition of this concession that full evidence is provided by the individual to the Comptroller on request, to show that the money has been borrowed from the bank and/or non-connected person by him/her personally and was used exclusively to purchase the property which is let on a commercial basis. The Comptroller will be prepared to allow the company relief for the interest paid on the loan as if it were interest within the provisions of Article 90AB, 90AD, 90AE and 90AF of the Income Tax Law.
I12. Loan obtained to purchase a property which is demolished and reconstructed to let on a commercial basis
Strictly the interest paid up to the commencement of the letting does not qualify for tax relief because it could not have been paid out of profits or gains of the letting of the property brought into charge to tax. However, the interest paid will be allowed as a deduction against the rents when they first arise under the provisions of Article 90AB of the Income Tax Law. Any part of the interest paid on the loan which is attributable to the demolition of the property will not qualify for tax relief.
I13. Loan advanced by a director to a company to acquire trading premises, the trade of which, is conducted by another associated company
Where:
- an individual obtains a loan from a bank and advances a similar sum by way of an interest free loan to their company to acquire trading premises
- the trade is conducted from the premises by another associated company
- tax relief will be granted against the trading profits of the company conducting the trade providing full evidence is provided by the individual to show that the money has been borrowed from the bank by them personally and was used exclusively to purchase the property from which the trade is being conducted
The claim for tax relief on the interest paid should be made in the tax computation accompanying the accounts of the trading company. The Comptroller will be prepared to allow the trading company relief for the interest paid on the loan as if it were interest within the provisions of Article 90AD, 90AE and 90AF of the Income Tax Law.
I14. Commercial letting – more than one property
Where an individual or company has more than one property let on a commercial basis the rents, expenses relating to the properties and the interest paid on the loans to acquire the properties may be aggregated for the purpose of determining the Schedule A assessment. However, if one or more of the properties ceases to be let on a commercial basis, any interest paid on the loans to acquire the property or properties up to the date the letting ceased and any interest paid brought forward may be allowed as a deduction against the aggregate rents received for that year.
Any ‘excess’ interest paid in respect of the property or properties which have ceased to be let on a commercial basis is not available for carry forward ie the interest will not be allowed as a deduction against the rents received from the remaining property or properties in the following year which continue to be let on a commercial basis.
It is important that an individual or company keep adequate records of the rents received, expenses incurred and loan interest paid in respect of each property so that the appropriate calculations and relief can be granted.
I15. Main residence under construction
If an individual acquires a loan to purchase land upon which they construct their main residence, the interest paid on the loan will be eligible for tax relief under Article 90AA of the Income Tax Law. This is notwithstanding that they will not occupy the property until the construction has been completed.
Similarly, tax relief will be extended to an individual who has purchased a dilapidated property as their main residence but is unable to occupy it until such time as it has been refurbished. Any part of the interest paid on the loan which is attributable to the cost of refurbishing the property will not be eligible for tax relief.
I16. Commercial letting – property under construction
If an individual or company acquires a loan to purchase land upon which a property is built to let on a commercial basis, the interest paid on the loan will be eligible for tax relief under Article 90AB of the Income Tax Law. This is notwithstanding that the property will not be let until the construction has been completed. The interest paid on the loan will be allowed as a deduction against the rent when the property commences to be let.
Similarly, tax relief will be extended to an individual or company who has purchased a dilapidated property to let on a commercial basis but is unable to let it until such time as it has been refurbished. Any part of the interest paid on the loan which is attributable to the cost of refurbishing the property will not be eligible for tax relief.
I17. Interest paid - Schedule A deduction
Interest paid on a loan to acquire a property let on a commercial basis will be aggregated with other normal outgoings incurred in respect of the let property. Any deficit, including the interest paid, will be carried forward and set off against rents received in the following years, subject to the restriction outlined in I14 above.
I18. Loan advanced to individual to acquire plant and machinery used in a trade conducted through a company
Tax relief will be granted against the trading profits of the company conducting the trade providing full evidence is provided by the individual to show that the money has been borrowed from the bank by them personally and was used exclusively to purchase the plant and machinery used in the trade.
The claim for tax relief on the interest paid should be made in the tax computation accompanying the accounts of the trading company.
The Comptroller will be prepared to allow the trading company relief for the interest paid on the loan as if it were interest within the provisions of Article 90AD, 90AE and 90AF of the Income Tax Law.
I19. Interest paid by individual on a loan in the name of another individual (the named borrowed) to acquire or extend their main residence
Interest paid on a loan in the name of another individual, the named borrower, which is used to acquire or extend their main residence may, by concession, qualify for interest tax relief under the provisions of Article 90AA of the Income Tax Law. Full details of the arrangements concerning the borrowing, repayment of the loan and payment of the interest charged must be disclosed in writing to the Comptroller.
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