Property purchase

Peter wishes to help his brother Paul to buy a property. The intention is to buy a property worth about £250 000 of which Paul will contribute £100 000 cash and Peter £150 000. Peter does not need to receive income from the property immediately but wants to preserve his capital and to receive compensation for its use.

Both Peter and Paul are UK residents. Peter is a 45% taxpayer Paul is a basic rate taxpayer.

It is proposed that Peter lends £150 000 to Paul who will buy the property outright. In lieu of rent an interest rate is set on the loan by reference to the UK inflation rate. The loan is secured against the property and is repayable on its sale or Paul’s death.

Would Peter be taxed on the interest only when it is received as opposed to when accrued? If so...