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volkan_p

Directors Loan, landing money to your limited company.

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Hi all,

hve a very quick question; I am planning to lend some money to my own limited company (zero interest) to buy a BTL. I believe this is called director’s loan so that my limited company can pay it back to me in the future without any tax implications. 

My question is, do I need to fill any standard forms to establish this loan relationship between my self (director) and my company?

thanks in advance

volkan

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Hi Voltan,

For England and Wales ltd companies no standard forms. Just record loan on balance sheet and on bank transfer Reference (if used) as loan. 

If you don't charge your company interest it makes the accounting alot easier too, otherwise you'd have to declare the interest you received as a personal gain, and your company would be classing the interest payment(s) as an expense.

Hope this helps

Conrad

 


Conrad Paton

+44 7957 959851

conradpaton@yahoo.co.uk

https://www.linkedin.com/in/conrad-paton-424446110

 

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Hi Volkan - thanks for asking the question - I'm looking at doing very similar. 

@conrad_paton thank you very much for your response. So I'm looking to loan an amount from my existing LTD company to a newly created one (Example properties Ltd) and then go on to invest in buy-to-let properties.

As I understand it the steps required are:

  1. Setup new LTD company
  2. Setup commercial loan agreement between LTD company 1 and LTD company 2 stating amount and interest payable (0%)
  3. Transfer funds across (labelling as loan)
  4. Inform my accountant about the transaction, so they can record on balance sheet

Am I missing anything?

Also, what's your opinion if I don't pay this loan back for a long-term (e.g. 15-20 years), is there any potential issues from HRMC/similar?

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Hi edward,

I understand what you are trying to do.

Yep. If I were doing what you intend to do I would be following your list. 1 to 4.

I'd open a new LTD SPV company bank account between 1 and 2 somewhere...but I kind of guess you'd do this anyway.

All you are hopefully trying to do is give SPV working capital, not launder cash or dodge taxes, and this is an acceptable way of doing it.

The loan is still on the existing companies balance sheet but 'as loaned cash' or similar.

If SPV wishes to gain mortgages or other commercial finance you must be able to demonstrate where the money came from...so do document everything.

Loan length of 20 years....personally I dont see this as a problem, but then I'm not a tax advisor or accountant.

Hope this helps

Conrad Paton


Conrad Paton

+44 7957 959851

conradpaton@yahoo.co.uk

https://www.linkedin.com/in/conrad-paton-424446110

 

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Hi @conrad_paton

Great, thank you so much for your input. 

Apologies, I had meant to type 'LTD SPV' instead of just 'LTD' for point #1 (still learning these things!).

Indeed, most definitely not attempting to launder/dodge taxes just, as you said, give the SPV working capital for investments purposes + generating a return on these investments. 

Currently carrying out the conversations with my existing accountant (who's fantastic) so obviously making sure that it's all documented and above board, but just wanted to check on the loan length and interest rate. Which, as I 100% own both entities, seems completely fine!

Thanks again Conrad, I sincerely appreciate you taking the time to respond.

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1 hour ago, edward_p said:

Thanks again Conrad, I sincerely appreciate you taking the time to respond.

Your Welcome ^^

At the end of everybodies post there is little white heart. Bottom right.

Click on that to say thanks aswell.

Conrad


Conrad Paton

+44 7957 959851

conradpaton@yahoo.co.uk

https://www.linkedin.com/in/conrad-paton-424446110

 

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Hi All

Just to add to the comments in this thread, in terms of process, you simply need to transfer the monies from your personal bank account and into the company bank account and record the correct accounting entries in your company accounts.  Not to get too technical, but from an accounting perspective, cash that you contribute to the limited company counts as "owner's capital" - this is a special type of liability of the limited company, i.e. it is money the company owes back to you as the owner.

As Conrad says, as long as you're not charging interest on the loan, then it's relatively straightforward and no loan documentation is needed.  Your account or bookkeeper should be able to deal with the accounting entries needed as part of your year end accounting.

Also, it's worth noting that when you repay the loan later, e.g. the company makes some rental profits and you decide to pay back the loan, the money that you take out is simply a repayment of the loan and is not taxed.

Hope this is helpful and feel free to drop me a private message if you want to know more about the accounting entries.

Many thanks

 Rob


Robert Heaton

Greenwich Bookkeeping | www.greenwichbookkeeping.co.uk

Author of "Essential Property Investment Calculations" - Available on Amazon

 

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Hey @rob heaton,

Thanks for the clarification. I've since understood the process better (largely thanks to the individuals in this group), and discussed with my accountant.

We are going to draft a very simply 'loan agreement' simply to have a record of this, but this is more belt and braces than a requirement.

Appreciate the input though Rob, and everyone else!

Best,

Edward

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Having read through the post, are there any complications if you lend multiple amounts to the company rather than 1 lump sum?

Im guessing it’s easier to drop a large amount in, but is spreading this amount over the weeks/months of purchase going to cause any issues other than to my accounts and recording it?
 

Also what is the difference between a Ltd co & a Ltd SPV.

 

Thanks,

 

Giles

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Hi @giles s

It's fine to lend multiple amounts to the company.  Obviously the fewer the loans made, the less accounting entries are needed.  I tend to just transfer larger sums of money across as and when I need it, e.g. for new property purchases, etc.

On the SPV question, SPV stands for special purpose vehicle - it's simply a limited company that you only use for property investment and nothing else.  Some lenders will only lend to an SPV, and so this is the way to go if you're investing through a limited company.

I hope this helps!

Best wishes

Rob


Robert Heaton

Greenwich Bookkeeping | www.greenwichbookkeeping.co.uk

Author of "Essential Property Investment Calculations" - Available on Amazon

 

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Thanks Rob, you confirmed what I thought on the loan part. 

On the SPV, get the principle thanks, is there anything different in set up to differentiate between SPV and ltd or is it just what the business does once set up?

 

thanks

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