BTL using LTD company funds...

BTL using LTD company funds...

Author
Discussion

Toaster Pilot

Original Poster:

14,620 posts

159 months

Tuesday 4th July 2017
quotequote all
Company A has a surplus of cash

Company B is a property letting/investment SPV with the same sole director as A

What is the most tax efficient way to transfer money between the two to allow B to buy another property?

Burrow01

1,811 posts

193 months

Wednesday 5th July 2017
quotequote all
Company A loans the money to Company B to purchase the BTL

Company B repays Company A via the income from the BTL

Eric Mc

122,043 posts

266 months

Wednesday 5th July 2017
quotequote all
And full disclosure of the nature of the arrangement is disclosed in the formal accounts of both companies.

Toaster Pilot

Original Poster:

14,620 posts

159 months

Thursday 6th July 2017
quotequote all
Eric Mc said:
And full disclosure of the nature of the arrangement is disclosed in the formal accounts of both companies.
Is this bit likely to cause problems with HMRC given the fact the two companies are completely unrelated sector/activity wise?

Jockman

17,917 posts

161 months

Thursday 6th July 2017
quotequote all
Toaster Pilot said:
Eric Mc said:
And full disclosure of the nature of the arrangement is disclosed in the formal accounts of both companies.
Is this bit likely to cause problems with HMRC given the fact the two companies are completely unrelated sector/activity wise?
Common ownership would I guess be the issue.

Eric Mc

122,043 posts

266 months

Thursday 6th July 2017
quotequote all
Common ownership and common control.

There might also be a requirement to make disclosure in the Persons of Significant Control at Companies House.

MadProfessor

253 posts

133 months

Friday 7th July 2017
quotequote all

The bigger problem will be whether this is acceptable to the mortgage lender, presuming that you're raising a mortgage as well.

My friend was forced to pay a dividend out from his trading company and then to use a directors loan to his SPV before the mortgage company would offer a BTL on the property. You should speak to a mortgage advisor that specialises in this field.

From HMRC perspective the companies will be considered 'connected' and this will have implications for how the debt is accounted for. For instance, how the debt and credit are accounted for, and should the SPV be unable to repay the loan the implications for the debt. I believe that you would be entitled to tax deduction from the trading company if the SPV fails to repay the loan. It may also cause complications in calculating any dividend payments for the trading company. You should speak to your accountant.


MadProfessor

253 posts

133 months

Friday 7th July 2017
quotequote all

The bigger problem will be whether this is acceptable to the mortgage lender, presuming that you're raising a mortgage as well.

My friend was forced to pay a dividend out from his trading company and then to use a directors loan to his SPV before the mortgage company would offer a BTL on the property. You should speak to a mortgage advisor that specialises in this field.

From HMRC perspective the companies will be considered 'connected' and this will have implications for how the debt is accounted for. For instance, how the debt and credit are accounted for, and should the SPV be unable to repay the loan the implications for the debt. I believe that you would be entitled to tax deduction from the trading company if the SPV fails to repay the loan. It may also cause complications in calculating any dividend payments for the trading company. You should speak to your accountant.


siheb

149 posts

186 months

Sunday 9th July 2017
quotequote all
Company A loans the money to Company B to purchase the BTL

Company B repays Company A via the income from the BTL

I do exactly this. Now have four mortgaged properties in the spv. No issues with hmrc or mortgage lender, Norwich & Peterborough BS. For extra security Co A also has a floating charge over all assets in Co B - which is second in line after the fixed mortgages obviously.

Hope this helps.

Alpinestars

13,954 posts

245 months

Sunday 9th July 2017
quotequote all
MadProfessor said:
The bigger problem will be whether this is acceptable to the mortgage lender, presuming that you're raising a mortgage as well.

My friend was forced to pay a dividend out from his trading company and then to use a directors loan to his SPV before the mortgage company would offer a BTL on the property. You should speak to a mortgage advisor that specialises in this field.

From HMRC perspective the companies will be considered 'connected' and this will have implications for how the debt is accounted for. For instance, how the debt and credit are accounted for, and should the SPV be unable to repay the loan the implications for the debt. I believe that you would be entitled to tax deduction from the trading company if the SPV fails to repay the loan. It may also cause complications in calculating any dividend payments for the trading company. You should speak to your accountant.
Why is this a problem? The mortgage will be secured over the asset. Make the loan from company A non secured and non cash interest paying (ie PIK or non interest bearing), and it shouldn't cause any problems for a mortgage company.

OP should also note that the loan from company A to B is a connected party loan relationship, so no profits or losses on the principal. Interest will be taxable in A on an accruals basis, but relief for the interest will broadly only be available when paid. You can manage this by either having a non interest paying loan, or PIKing the interest. As noted above, it's unlikely the mortgage company would allow cash payment of interest to company A.

sleepezy

1,804 posts

235 months

Sunday 9th July 2017
quotequote all
siheb said:
Company A loans the money to Company B to purchase the BTL Company B repays Company A via the income from the BTL

I do exactly this.
Do you own both co's separately? I am just in the process of doing this but planning on setting up a company that will own both my consulting business and property SPV's. Consulting co will the divi up to top co which then lends out to spv <- thought this approach would be 'cleaner' from HMRC perspective...

Have a meeting in a couple of weeks with my accountant to discuss but would welcome thoughts beforehand.

Jockman

17,917 posts

161 months

Monday 10th July 2017
quotequote all
Alpinestars said:
Why is this a problem? The mortgage will be secured over the asset. Make the loan from company A non secured and non cash interest paying (ie PIK or non interest bearing), and it shouldn't cause any problems for a mortgage company.

OP should also note that the loan from company A to B is a connected party loan relationship, so no profits or losses on the principal. Interest will be taxable in A on an accruals basis, but relief for the interest will broadly only be available when paid. You can manage this by either having a non interest paying loan, or PIKing the interest. As noted above, it's unlikely the mortgage company would allow cash payment of interest to company A.
One day, I hope to understand what this means laugh

You're one clever sod !!!

Alpinestars

13,954 posts

245 months

Monday 10th July 2017
quotequote all
Jockman said:
Alpinestars said:
Why is this a problem? The mortgage will be secured over the asset. Make the loan from company A non secured and non cash interest paying (ie PIK or non interest bearing), and it shouldn't cause any problems for a mortgage company.

OP should also note that the loan from company A to B is a connected party loan relationship, so no profits or losses on the principal. Interest will be taxable in A on an accruals basis, but relief for the interest will broadly only be available when paid. You can manage this by either having a non interest paying loan, or PIKing the interest. As noted above, it's unlikely the mortgage company would allow cash payment of interest to company A.
One day, I hope to understand what this means laugh

You're one clever sod !!!
Thank you. When you do understand it, can you explain it to me too!