Loan to buy equity - business or personal is best?
Discussion
I need to borrow £75k to buy into a company, for which I'll ultimately become a director.
Our (personal) mortgage provider is willing to lend the money in principle, secured against our house, and at a good rate (2.5% or so). Although it's for business purposes their advisor suggested on the phone that the reason of a house extension could be given in order to circumvent their rules (and those of the FSA, it seems).
My accountant has pointed out that if it were a business loan secured against the equity I could offset interest payments against income tax. I've called my own business bank but they only offer secured loans against property. What's the best way of getting an idea of the options available to me for a business loan like this? Are there brokers that handle this or do I simply prostrate myself at the high-street banks' doors and grovel? And what are interest rates likely to be on a business loan secured against equity? Much higher than personal mortgage rates, I suspect.
I don't know where to begin looking for advice about business loans yet, so any suggestions would be appreciated.
Our (personal) mortgage provider is willing to lend the money in principle, secured against our house, and at a good rate (2.5% or so). Although it's for business purposes their advisor suggested on the phone that the reason of a house extension could be given in order to circumvent their rules (and those of the FSA, it seems).
My accountant has pointed out that if it were a business loan secured against the equity I could offset interest payments against income tax. I've called my own business bank but they only offer secured loans against property. What's the best way of getting an idea of the options available to me for a business loan like this? Are there brokers that handle this or do I simply prostrate myself at the high-street banks' doors and grovel? And what are interest rates likely to be on a business loan secured against equity? Much higher than personal mortgage rates, I suspect.
I don't know where to begin looking for advice about business loans yet, so any suggestions would be appreciated.
AcidReflux said:
Our (personal) mortgage provider is willing to lend the money in principle, secured against our house, and at a good rate (2.5% or so). Although it's for business purposes their advisor suggested on the phone that the reason of a house extension could be given in order to circumvent their rules (and those of the FSA, it seems).
Love it an inhouse advisor just suggested you commit fraud.
I hope you at the very least have a time and date for that call, plus the name of the chimp that said it.
Do you already run a business?
Would the business loan be taken out in order to invest in the equity of another business?
On what grounds does your accountant think that interest on such a business loan can be used to reduce your tax liability?
The basic principle is that a business can obtain tax relief on interest if the underlying borrowings are for the purpose of THAT BUSINESS' TRADING ACTIVITY. If the loan is to invest in some other business, then the interest cannot be offset against the first business' profits.
HOWEVER, if an INDIVIDUAL takes out a loan in order to invest in the equity of a partnership (i.e. inject capital) or shares in a limited copmpany, then the INDIVIDUAL can make a separate claim for the interest on that loan as part of their Self Assesment tax return submission.
Would the business loan be taken out in order to invest in the equity of another business?
On what grounds does your accountant think that interest on such a business loan can be used to reduce your tax liability?
The basic principle is that a business can obtain tax relief on interest if the underlying borrowings are for the purpose of THAT BUSINESS' TRADING ACTIVITY. If the loan is to invest in some other business, then the interest cannot be offset against the first business' profits.
HOWEVER, if an INDIVIDUAL takes out a loan in order to invest in the equity of a partnership (i.e. inject capital) or shares in a limited copmpany, then the INDIVIDUAL can make a separate claim for the interest on that loan as part of their Self Assesment tax return submission.
Eric Mc said:
HOWEVER, if an INDIVIDUAL takes out a loan in order to invest in the equity of a partnership (i.e. inject capital) or shares in a limited copmpany, then the INDIVIDUAL can make a separate claim for the interest on that loan as part of their Self Assesment tax return submission.
This is the scenario.The expression "business loan" is probably a bit too vague.
If you take out a personal loan to invest in a business, then, in certain circumstances, you, as an individual can offset the interest on that loan against your persoanl income for income tax purposes. Those "certain ciorcumstances" are -
a loan to buy shares in a tarding company
a loan to invest capital into a partnership
they DO NOT include - a personal loan to top up working capital in a sole trading business
If the business itself takes out a loan for "business purposes", then the interest on that loan is deductable as an expense in the profit and loss account of that business
If you take out a personal loan to invest in a business, then, in certain circumstances, you, as an individual can offset the interest on that loan against your persoanl income for income tax purposes. Those "certain ciorcumstances" are -
a loan to buy shares in a tarding company
a loan to invest capital into a partnership
they DO NOT include - a personal loan to top up working capital in a sole trading business
If the business itself takes out a loan for "business purposes", then the interest on that loan is deductable as an expense in the profit and loss account of that business
Thank you Eric. I think you and my accountant are saying the same thing about offsetting the interest.
I don't yet know how to borrow this much money for business purposes as an individual without paying too much in interest. Finding a solution to that problem was the intended gist of this thread.
Worrying about the possibility of EIS relief will come later...
I don't yet know how to borrow this much money for business purposes as an individual without paying too much in interest. Finding a solution to that problem was the intended gist of this thread.
Worrying about the possibility of EIS relief will come later...
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