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Directors loan from me to my company to fund a deposit? Possible? Tax efficient?


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Following the summer budget bombshell, like a lot of people I’m now considering buying my next investment property through a limited company using a mortgage. I've been trying to pick my way through the pros and cons for me personally, especially the tax implications which is of course why I'd be doing it in the first place!  I’m going to speak to an accountant in due course (never used one before) but it would be really good to know if I’m generally on the right track before I do.


To this end I have a question about the most tax efficient way to put the company in funds for the deposit in order to get the mortgage. From what I can gather from reading about the topic, I think the most efficient way would be by way of a directors loans from me personally to the company?  But I'd be really grateful if anyone could validate my reasoning below or let me know if this is the wrong approach?!


The company I would use would be new and specifically set up for this purpose.  I would transfer the deposit from my personal account into the company’s business account.  I presume if the deposit can be treated as a directors loan, this can be paid back to me and offset against the companies’ profits (rental income)?  This would mean that no capital gains tax would be payable until the company had paid back the loan to me personally as there would be no profit in the company.  The logic is that the rental income being paid to the company (after all other costs) is all being paid back to me as a financing cost to pay off the loan.  As I understand it, this would mean in essence that I can get my deposit back out via rental income (profit) over time without the company having to pay any CGT or any other tax?  In addition, I personally wouldn’t have to pay any tax on this money being repaid to me (other than any interest I levied) as it’s not income, just the principal being repaid?


Obviously once I’ve been paid back fully by the company it will start making a profit (well hopefully anyway!).  This would mean the company would start paying CGT and I would pay other types of tax if money is extracted.  But that’s a separate issue... 


I’ve spoken to a couple of mortgage brokers who seemed to be of the view that a lender wouldn’t have an issue with this directors loan approach as they’d have a personal guarantee back to me anyway (directors guarantee).  They of course couldn’t comment on the tax issue.


Have I got the right end of the stick?  Obviously the big benefit to me is getting my deposits back out from the company in a tax efficient way.  If I’m wrong what am I missing and what is the alternative tax efficient way to fund your first company with a deposit?   Thanks again for any thoughts or any resources you can point me towards.  Nothing seems straight forward!

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precisely the route I am thinking of taking and await feedback from anyone who has gone through

the process.

I have Googled without success to what would seem a simple question, how does one finance a 

I've heard tax would be demanded after 9 months following incorpation date if the loan has not

been repaid though this tax is refundable once the loan has been fully repaid.


Feedback would be most welcome with thanks in advance.

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We are planning to do the same thing. But we may structure it as a shareholder loan to the company rather than a director loan. The reason for doing this it that we want to charge the company interest on the money lent and we have a shareholder who is non-UK resident and so can (presumably) get the interest paid without having to pay tax on it as it will be below the UK personal allowance. The same would also work (assuming that it works at all! - anyone can confirm? ) for anyone not currently using their full UK tax allowance. I believe that the only constraint is that it needs to be a market level interest rate.


The Tax Cafe (search on the internet) book on "Using a property company to reduce tax" has a lot of info on this and other ideas.


My understanding of the 9 month rule was that this is for money that a director borrows FROM a company, rather than TO a company. I think that it's a way of trying to prevent a director from using a "fake" loan to withdraw profits and reduce overall tax paid.

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  • 2 weeks later...

IMHO Interest paid on the loan provided to the ltd company would be offset-able as an expense but the actual capital repayment would not be a trading expense nor offset-able as it is capital. The co has to make the profit to repay the capital introduced. In other words the loan provided was not treated as a taxable income so the repayment is likewise not a taxable expense

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Directors loan from me to my company to fund a deposit? Possible?

Be weary of which lender you use.

Some are ok with this and others are not - as it could be concidered that the company borrowed the mortgage funds from them and the deposit from someone else - 100% LTV.
Of course we know its not, and some lenders are wise to this and do allow it.


Tax efficient?

It certainly is - im no accountant.

As I understand it this bypasses your personal tax threasholds. As you are being repaid a loan that it is a good way to withdraw funds back out of your company above the Tax Allowances.

:wub: Get Mortgage Advice from my Team at Bespoke Finance on 08009202001 or email hello@bespokefinance.info 
Please don't take my messages on Property Hub as Personal Financial Advice, just a rambling guy passing time on a Coffee Break.

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