Loaning money to business
Discussion
I have a small property portfolio with various mortgages picked up over the years. Some properties are held in a Ltd company. Can I loan the Ltd company money to pay off a mortgage then have the loan repaid pre-tax? I’m assuming if I don’t charge interest to the company it would just be a straight repayment off the bottom line. This would reduce the profit margin for that year but subsequent years would show an increased profit.
I have a commercial property with a mortgage attracting an interest rate of 4.5% This is the one I’m thinking of paying off. Are there any downsides? Should I be considering this or putting the money in a pension?
Feel free to pick holes in my strategy/lunacy.
I have a commercial property with a mortgage attracting an interest rate of 4.5% This is the one I’m thinking of paying off. Are there any downsides? Should I be considering this or putting the money in a pension?
Feel free to pick holes in my strategy/lunacy.
MAVROS said:
I have a small property portfolio with various mortgages picked up over the years. Some properties are held in a Ltd company. Can I loan the Ltd company money to pay off a mortgage then have the loan repaid pre-tax? I’m assuming if I don’t charge interest to the company it would just be a straight repayment off the bottom line. This would reduce the profit margin for that year but subsequent years would show an increased profit.
I have a commercial property with a mortgage attracting an interest rate of 4.5% This is the one I’m thinking of paying off. Are there any downsides? Should I be considering this or putting the money in a pension?
Feel free to pick holes in my strategy/lunacy.
You are perfectly free to loan the company money and there would be no tax to pay on the repayment of the principle advanced. I would consider that this would need to be a commercial agreement that required some form of interest payable or other specific charge over assets. I may be over egging this though, as I don't know the sums involved.I have a commercial property with a mortgage attracting an interest rate of 4.5% This is the one I’m thinking of paying off. Are there any downsides? Should I be considering this or putting the money in a pension?
Feel free to pick holes in my strategy/lunacy.
A good accountant (Eric Mc) could give you far better advice on this that me, but my initial thoughts are there could be some great tax advantages in developing this approach further...
JulianPH said:
You are perfectly free to loan the company money and there would be no tax to pay on the repayment of the principle advanced. I would consider that this would need to be a commercial agreement that required some form of interest payable or other specific charge over assets. I may be over egging this though, as I don't know the sums involved.
A good accountant (Eric Mc) could give you far better advice on this that me, but my initial thoughts are there could be some great tax advantages in developing this approach further...
Only really worth it if you in turn aren't going to be taxed on the interest you receive from the company.A good accountant (Eric Mc) could give you far better advice on this that me, but my initial thoughts are there could be some great tax advantages in developing this approach further...
The accounting for a loan from a director means that money in doesn't reflect as income and therefore won't affect the corp tax in or out.
JulianPH said:
I would consider that this would need to be a commercial agreement that required some form of interest payable....
Yes, that's the way I've done it. Unless interest is at a sensible commercial rate HMRC could attack the transaction.The issue is that if you, say, make an interest free loan to a company you are suppressing your own income/assets and enabling the company to make additional profit.
rockin said:
JulianPH said:
I would consider that this would need to be a commercial agreement that required some form of interest payable....
Yes, that's the way I've done it. Unless interest is at a sensible commercial rate HMRC could attack the transaction.The issue is that if you, say, make an interest free loan to a company you are suppressing your own income/assets and enabling the company to make additional profit.
There is no requirement to charge interest on a loan you make to your limited company.
https://www.gov.uk/directors-loans/you-lend-your-c...
If you do there are tax implications for the company and the individual.
https://www.gov.uk/directors-loans/you-lend-your-c...
If you do there are tax implications for the company and the individual.
rockin said:
JulianPH said:
I would consider that this would need to be a commercial agreement that required some form of interest payable....
Yes, that's the way I've done it. Unless interest is at a sensible commercial rate HMRC could attack the transaction.The issue is that if you, say, make an interest free loan to a company you are suppressing your own income/assets and enabling the company to make additional profit.
bradders said:
rockin said:
JulianPH said:
I would consider that this would need to be a commercial agreement that required some form of interest payable....
Yes, that's the way I've done it. Unless interest is at a sensible commercial rate HMRC could attack the transaction.The issue is that if you, say, make an interest free loan to a company you are suppressing your own income/assets and enabling the company to make additional profit.
You can charge no interest, or a commercial rate. What you can't do is overcharge the business e.g. set a 20% interest rate when a bank might lend at 6% for example.
rockin said:
Yes, that's the way I've done it. Unless interest is at a sensible commercial rate HMRC could attack the transaction.
The issue is that if you, say, make an interest free loan to a company you are suppressing your own income/assets and enabling the company to make additional profit.
No. The issue is that if you, say, make an interest free loan to a company you are suppressing your own income/assets and enabling the company to make additional profit.
EddieSteadyGo said:
Yes, this is the advice I have received from my accountant too.
You can charge no interest, or a commercial rate. What you can't do is overcharge the business e.g. set a 20% interest rate when a bank might lend at 6% for example.
Maybe I’m being a pedant, but you can charge whatever you like. But there might be tax implications for the company and the individual (with some of the interest being treated as a dividend and not interest). You can charge no interest, or a commercial rate. What you can't do is overcharge the business e.g. set a 20% interest rate when a bank might lend at 6% for example.
And don’t forget withholding tax on any interest paid by the company.
rockin said:
Alpinestars said:
Maybe I’m being a pedant
"You can drive your 150 mph car as fast as you like in the UK.""You might get nicked for speeding, but only if you do it on public roads and get caught."
Alpinestars said:
Maybe I’m being a pedant, but you can charge whatever you like. But there might be tax implications for the company and the individual (with some of the interest being treated as a dividend and not interest).
Yes, this is a fair point. I've slipped into the mode of referring to the company and the individual as the same entity.I still think it means that any interest charged should be somewhere between either 0% or a commercial rate of interest, rather than using an artificial high one - at least that's what I do
EddieSteadyGo said:
Yes, this is a fair point. I've slipped into the mode of referring to the company and the individual as the same entity.
I still think it means that any interest charged should be somewhere between either 0% or a commercial rate of interest, rather than using an artificial high one - at least that's what I do
That’s generally right - but depends on both the company’s tax position and the individual’s. An “excessively high” rate can have exactly the same result as a commercial rateI still think it means that any interest charged should be somewhere between either 0% or a commercial rate of interest, rather than using an artificial high one - at least that's what I do
Research CT61 and the way you can take some more cash out your company by charging interest on a director's loan to your company. Benefits if you pay yourselves a low salary, which allows you to use your SRB (savings rate band) allowance.
Bit complicated and a bit of admin and you have to pay HMRC some income tax up front, which you largely get back when you do your tax return.
Not a massive amount, but better in my pocket than HMRCs
Bit complicated and a bit of admin and you have to pay HMRC some income tax up front, which you largely get back when you do your tax return.
Not a massive amount, but better in my pocket than HMRCs
alpertonian said:
Research CT61 and the way you can take some more cash out your company by charging interest on a director's loan to your company. Benefits if you pay yourselves a low salary, which allows you to use your SRB (savings rate band) allowance.
Bit complicated and a bit of admin and you have to pay HMRC some income tax up front, which you largely get back when you do your tax return.
Not a massive amount, but better in my pocket than HMRCs
A CT61 is the form a company uses to make a return that income tax has been deducted from certain payments, eg interest payments to individuals, as in this case. It’s got nothing to do with SRB. Bit complicated and a bit of admin and you have to pay HMRC some income tax up front, which you largely get back when you do your tax return.
Not a massive amount, but better in my pocket than HMRCs
SRB is relevant for when an individual has savings income, eg interest on a loan to a company, potentially giving the individual tax free income as you say. Any IT withheld by the company is either credited against the individuals’ tax liability, or repaid to the extent the withholding tax exceeds the liability.
Gassing Station | Finance | Top of Page | What's New | My Stuff