Borrowing from our limited company
Borrowing from our limited company
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milfordkong

Original Poster:

1,307 posts

262 months

Monday 13th November 2017
quotequote all
Hi there,

My wife and I co-own and co-run a small business, we're 50/50 share holders and we'd like to take some money from the business (Around £40k) for a property purchase. Whilst we're more than happy to pay the associated additional income tax incurred from doing this as a dividend, if there's a way to take the money out legally with less of a substantial tax implication then i'd like to consider that too - My accountant has mentioned that we're able to borrow from the business as long as we pay a rate of interest, which sounds interesting - Now despite asking him to dumb this down for me many times, he seems reluctant to to do so, or to advise on if this is actually a feasible or sensible course of action.

So my question is, what does this situation actually look like? My wife and I borrow £40k from our business, say we go for a rate of 3% payable back to the business, what does the repayment situation need to look like? Can it be, we pay the full amount + interest of £41,200 back in 10 years time? Or does it need to be we pay a specific amount per month or per year? What's the simplest way to do this and is it even worth doing? If it's just a world of hassle i'd sooner just pay the extra tax and be done with it, but if it's fairly straightforward and will help us keep a few extra k in the business i'm keen to pursue it.

Any advice very much appreciated.

Andrew









PurpleMoonlight

22,362 posts

187 months

Monday 13th November 2017
quotequote all
Yes you can borrow from your Ltd.

Up to £10,000 each and you don't have to worry about interest. Of you borrow more than that you need to pay the HMRC approved interest rate (I can't remember what this is off hand though). If you don't the difference will be deemed a Benefit in Kind and taxed.

The biggest drawback is that if the loan is not repaid within 9 months of your financial year end the Ltd will need to lodge 32.5% of the loan on account tax with HMRC. That is reclaimed in full or part when the loan is repaid in full or part.

IJWS15

2,235 posts

115 months

trickywoo

14,239 posts

260 months

Monday 13th November 2017
quotequote all
Would buying the property as part of a pension work?

milfordkong

Original Poster:

1,307 posts

262 months

Monday 13th November 2017
quotequote all
Thanks for the answers all round, much appreciated - Sounds like it's not a goer then as it certainly would not be repaid within 9 months of the financial year end and lodging 32.5% with HMRC sounds like a considerable faff. The amount is approx £40k too so well over the £10k directors loan limit.

trickywoo said:
Would buying the property as part of a pension work?
I'm not sure about this, probably should have been something I investigated more earlier on in the process - It's an overseas property and we may be too far down the road with the purchase to change the situation at the other end.

anonymous-user

84 months

Monday 13th November 2017
quotequote all
milfordkong said:
I'm not sure about this, probably should have been something I investigated more earlier on in the process - It's an overseas property and we may be too far down the road with the purchase to change the situation at the other end.
If there is any residential aspect with the property then a pension can't purchase.

Might be worth spending a few hundred on a decent accountant/ifa to go through the options with you.


milfordkong

Original Poster:

1,307 posts

262 months

Monday 13th November 2017
quotequote all
desolate said:
If there is any residential aspect with the property then a pension can't purchase.

Might be worth spending a few hundred on a decent accountant/ifa to go through the options with you.
It is completely residential. My accountant is mostly pretty good, and i've certainly explained that i'd be happy to pay for his opinion and advice on the matter but I can only surmise that we're too small fry or it's a particularly hectic time for him as he's reluctant to give any more than the most perfunctory answers to my questions.

anonymous-user

84 months

Monday 13th November 2017
quotequote all
milfordkong said:
It is completely residential. My accountant is mostly pretty good, and i've certainly explained that i'd be happy to pay for his opinion and advice on the matter but I can only surmise that we're too small fry or it's a particularly hectic time for him as he's reluctant to give any more than the most perfunctory answers to my questions.
If you are of a certain age it may be possible to put the money into your pension and withdraw it, maybe even tax free.

Depends if you are an old git or not!

If your accountant has looked at it it's likely you just have to suck it up and pay the tax.

milfordkong

Original Poster:

1,307 posts

262 months

Monday 13th November 2017
quotequote all
desolate said:
Depends if you are an old git or not!

If your accountant has looked at it it's likely you just have to suck it up and pay the tax.
I'm 33 so hopefully not quite an old git ... but yes it's looking like i'm just going to have to grin and bear it, which is fine, we've based all our calculations on that being the case anyway. Worth putting the question out there though.