Pay off NZ debt?

Our Experts Answer:

To answer this I assume the debt in the trust is personal bearing interest that is non deductible. Refinancing the UK property does not necessarily make the interest deductible simply be securing debt against the income earning asset. If the borrowed money is not used to derive taxable income, as would be the case here, the interest is not deductible, i.e. it's not the security for the loan that matters but what the money was used for that determines the deductibility. More foreign debt also exposes you to the unpredictability of taxable gains on movements in the loan amount when expressed in NZ dollars as a result of changes in the exchange rate. There are also non-resident withholding taxes to consider and approved issuer levies on the interest being paid to the foreign bank. You would also be buying the kiwi dollars with borrowed pounds at a time when the kiwi is at all time highs. I think the snake is longer than the ladder on this one.