BTL Finance, can I do this?
Discussion
I have a few BTL's but the first one was financed by remortgaging my home. The loan is an IO offset.
The mortgage interest is an allowable expense as the loan was taken for the purchase of the BTL (even though its secured against my own home). All confirmed as ok by my accountant.
I have a Ltd Co which has some spare cash and thats making about 0.0001% interest. I'm thinking of taking a directors loan and stick it in the offset where it will save me 4% mortgage interest payments, however I will have to pay the company 3% interest.
My question is will the interest payment to my Ltd Company be an allowable expense in my BTL accounts? obviously the money going into the Ltd Company is taxable in those accounts so its not a tax dodge (as far as I can see).
The benefit to me is that my Ltd Co recieves the interest payment rather then my mortgage company.
I'll ask my accountant on Monday, but what the PH opinion?
The mortgage interest is an allowable expense as the loan was taken for the purchase of the BTL (even though its secured against my own home). All confirmed as ok by my accountant.
I have a Ltd Co which has some spare cash and thats making about 0.0001% interest. I'm thinking of taking a directors loan and stick it in the offset where it will save me 4% mortgage interest payments, however I will have to pay the company 3% interest.
My question is will the interest payment to my Ltd Company be an allowable expense in my BTL accounts? obviously the money going into the Ltd Company is taxable in those accounts so its not a tax dodge (as far as I can see).
The benefit to me is that my Ltd Co recieves the interest payment rather then my mortgage company.
I'll ask my accountant on Monday, but what the PH opinion?
Would be interesting to see a professional's opinion, but I'll give my view in the meantime.
I think you are conflating your BTL business and your personal finances. If you separate them out as your personal finances, a BTL business, and another LTD business, things become a bit easier to consider.
Taking this approach also shows why I believe your mortgage arrangement using a mortgage on your home and claiming tax relief for your BTL purchase is not the right setup.
Whilst your accountant says it is ok, it is open to abuse as some would argue you could effectively be getting tax relief on your personal mortgage contributions.
I realise this wasn't the question you were asking - I only mention it as it relates to your actual question.
Whist HRMC allows a simplified setup for BTL which doesn't require you to setup a BTL business inside a LTD company, it doesn't mean you can mix up your finances with the BTL operation.
If you receive the money as a director's loan, you have the money personally.
You are then effectively lending it to your BTL business. So, in that scenario you could decide to either lend it at zero rate or you could make a charge for it.
If you make a charge you are effectively removing the benefit as you would then still pay tax on the benefit you receive personally.
So, overall I don't think this would stand up to a HRMC investigation.
I think you are conflating your BTL business and your personal finances. If you separate them out as your personal finances, a BTL business, and another LTD business, things become a bit easier to consider.
Taking this approach also shows why I believe your mortgage arrangement using a mortgage on your home and claiming tax relief for your BTL purchase is not the right setup.
Whilst your accountant says it is ok, it is open to abuse as some would argue you could effectively be getting tax relief on your personal mortgage contributions.
I realise this wasn't the question you were asking - I only mention it as it relates to your actual question.
Whist HRMC allows a simplified setup for BTL which doesn't require you to setup a BTL business inside a LTD company, it doesn't mean you can mix up your finances with the BTL operation.
If you receive the money as a director's loan, you have the money personally.
You are then effectively lending it to your BTL business. So, in that scenario you could decide to either lend it at zero rate or you could make a charge for it.
If you make a charge you are effectively removing the benefit as you would then still pay tax on the benefit you receive personally.
So, overall I don't think this would stand up to a HRMC investigation.
EddieSteadyGo said:
Would be interesting to see a professional's opinion, but I'll give my view in the meantime.
I think you are conflating your BTL business and your personal finances. If you separate them out as your personal finances, a BTL business, and another LTD business, things become a bit easier to consider.
Taking this approach also shows why I believe your mortgage arrangement using a mortgage on your home and claiming tax relief for your BTL purchase is not the right setup.
Whilst your accountant says it is ok, it is open to abuse as some would argue you could effectively be getting tax relief on your personal mortgage contributions.
I realise this wasn't the question you were asking - I only mention it as it relates to your actual question.
Whist HRMC allows a simplified setup for BTL which doesn't require you to setup a BTL business inside a LTD company, it doesn't mean you can mix up your finances with the BTL operation.
If you receive the money as a director's loan, you have the money personally.
You are then effectively lending it to your BTL business. So, in that scenario you could decide to either lend it at zero rate or you could make a charge for it.
If you make a charge you are effectively removing the benefit as you would then still pay tax on the benefit you receive personally.
So, overall I don't think this would stand up to a HRMC investigation.
Using a residential house to release money for a BTL should be fine with HMRC. My accountant said its the purpose of the loan, not what its secured against that counts. Its been confirmed on here as well.I think you are conflating your BTL business and your personal finances. If you separate them out as your personal finances, a BTL business, and another LTD business, things become a bit easier to consider.
Taking this approach also shows why I believe your mortgage arrangement using a mortgage on your home and claiming tax relief for your BTL purchase is not the right setup.
Whilst your accountant says it is ok, it is open to abuse as some would argue you could effectively be getting tax relief on your personal mortgage contributions.
I realise this wasn't the question you were asking - I only mention it as it relates to your actual question.
Whist HRMC allows a simplified setup for BTL which doesn't require you to setup a BTL business inside a LTD company, it doesn't mean you can mix up your finances with the BTL operation.
If you receive the money as a director's loan, you have the money personally.
You are then effectively lending it to your BTL business. So, in that scenario you could decide to either lend it at zero rate or you could make a charge for it.
If you make a charge you are effectively removing the benefit as you would then still pay tax on the benefit you receive personally.
So, overall I don't think this would stand up to a HRMC investigation.
I can see that a directors loan might be different though. The company is loaning me the money, not to my BTL business.
What I'm trying to avoid is the double taxation of not getting the relief on the loan (hence paying more tax) and paying tax on the interest recieved into the business account.
98elise said:
Using a residential house to release money for a BTL should be fine with HMRC. My accountant said its the purpose of the loan, not what its secured against that counts. Its been confirmed on here as well.
I can see that a directors loan might be different though. The company is loaning me the money, not to my BTL business.
What I'm trying to avoid is the double taxation of not getting the relief on the loan (hence paying more tax) and paying tax on the interest recieved into the business account.
So you can take a directors loan long term if you pay interest back to the ltd?I can see that a directors loan might be different though. The company is loaning me the money, not to my BTL business.
What I'm trying to avoid is the double taxation of not getting the relief on the loan (hence paying more tax) and paying tax on the interest recieved into the business account.
trowelhead said:
So you can take a directors loan long term if you pay interest back to the ltd?
My understanding is that you can take a long term loan provided you pay a commercial rate of interest. The main point HRMC want to avoid in this regard is when directors take a loan that it actually income but which they say is an "interest free loan" (and which never gets repaid). This is what all those contractors got caught up in who used the 'Montpelier' type tax avoidance schemes.
98elise said:
Using a residential house to release money for a BTL should be fine with HMRC. My accountant said its the purpose of the loan, not what its secured against that counts. Its been confirmed on here as well.
I can see that a directors loan might be different though. The company is loaning me the money, not to my BTL business.
What I'm trying to avoid is the double taxation of not getting the relief on the loan (hence paying more tax) and paying tax on the interest recieved into the business account.
I'd be interested to hear from anyone else who has verified this approuch with HRMC.I can see that a directors loan might be different though. The company is loaning me the money, not to my BTL business.
What I'm trying to avoid is the double taxation of not getting the relief on the loan (hence paying more tax) and paying tax on the interest recieved into the business account.
I was told when I made an enquiry with my accountant regarding a holiday cottage that the mortgage needed to be against the property on which I would be claiming mortgage relief, rather than my own property.
Otherwise it would create a situation where someone could inflate the borrowing on which they were claiming tax relief. It would also make it much harder to keep clear accounts if the BTL finances are mixed up with personal finances.
I see your objective though and why you would want to do it. Essentially though I come back to the view that if you consider them as three separate entities, which technically they are, it makes it much easier to consider what should be allowable.
EddieSteadyGo said:
trowelhead said:
So you can take a directors loan long term if you pay interest back to the ltd?
My understanding is that you can take a long term loan provided you pay a commercial rate of interest. The main point HRMC want to avoid in this regard is when directors take a loan that it actually income but which they say is an "interest free loan" (and which never gets repaid). This is what all those contractors got caught up in who used the 'Montpelier' type tax avoidance schemes.
I can pay the directors loan back at any time as its just sitting in the mortgage offset account.
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