I’m looking at taking out a loan with my bank and then loaning this on to my daughter to help her start her business as a sole trader. She will pay me back with interest to cover my cost
Your daughter could claim tax relief on the interest she pays to you, just as if she had taken the loan from a bank for business purposes. However, any interest you receive from your daughter is taxable on you and you cannot offset the interest you pay against this, leaving you with a nasty tax bill. I assume your daughter is unable to obtain the loan herself. One alternative solution to avoid this would be for you to become a partner in the business. The loan interest you pay would then be deductible from your share of the profits, which could possibly be an amount equal to the interest. You could also look at if your daughter could get the loan herself but with you acting as guarantor in support of the application.