This is actually a tax minimisation strategy which may be recommended to clients with lump sum funds towards the end of a financial year. Sometime referred to as “creating an obligation” the strategy involves paying the interest that will accumulate in advance on a property investment loan over the following tax year before it is actually charged.
This allows you to claim the costs against your current tax year (the year the interest was paid. In almost all cases, this must be approved by your lender before proceeding. Some lenders may even offer a small discount on the interest rate if you do pay in advance. Full documentation of the bank transaction must also be given to your tax advisor before a claim can be made.
