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Paying a mortgage deposit into a LTD company


phil t

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Hi all, I'm currently in the process of weighing up the decision of starting a LTD company to continue my property investing. The question I have is about paying the deposit in to the company from my personal savings. I understand I can "GIFT" funds in to the company but I then believe I will be taxed on these funds when I remove them from the company, I also understand I can arrange a loan from myself in to the company, which I should be able to withdraw from the company tax free? Am I correct? If so how do I go about setting up the loan, I assume it has to be documented? Will this effect my mortgage opportunities? If any of you guys have any information or experiences on this I'd be very grateful for your help and advice.

 

Many Thanks

Phil

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I'm no specialist but as far as i'm aware it can be classed as a Directors Loan and this can be withdrawn tax free. The other bonus is that due to it being a loan you can effectively charge yourself interest. This means that not only can you withdraw the money you put in, but you could withdraw slightly more (depending on what 'interest' you pay.

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11 hours ago, Fir Tree said:

I'm no specialist but as far as i'm aware it can be classed as a Directors Loan and this can be withdrawn tax free. The other bonus is that due to it being a loan you can effectively charge yourself interest. This means that not only can you withdraw the money you put in, but you could withdraw slightly more (depending on what 'interest' you pay.

 I have been considering a similar approach - I think this is more commonly referred to as a shareholder's loan (a directors loan normally referring to the Company loaning money to the director, whereas this is the reverse).  I am trying to work out whether you can charge interest on the shareholder's loan to effectively reduce current year corporation tax - and continue to reduce tax every year until the mortgage repayments are complete.  Rough calculations seem to prove that this works in excel as the compounding of interest over say a 15 year mortgage adds up, and helps reduce profit.

 

From what I understand the Company can then repay the loan to the shareholder which is not deemed income for the shareholder.  However, repayment of the interest portion of the shareholder's loan will be deemed interest when received by the shareholder, and therefore taxable income when paid.  However, if this is repaid in year 16 (assuming a 15 year mortgage) then due to the time value of money, the tax paid on the interest would almost certainly be less that having paid corporate income tax each year (if an interest free shareholder's loan was provided).

 

Has anyone used this structure?  If it is permitted, I guess the key question becomes what interest rate is permitted?

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Thank you both for taking the time to reply.

 

I believe Richie to be correct with it being a Shareholder loan. With regards to charging interest on the loan I would be very interested in finding out if this is possible. As you've pointed out it would be massively beneficial over a longer time period, although I imagine there will be a few limitations to the interest rate that can be charged, hopefully someone will be able to let us know.

 

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A directors loan is the term used for loans involving directors, whether loaned to the company or loaned to the director. 

 

HMRC state that a commercial rate can be charged. I tend to look at what interest rate I would be charged if i took out a loan from a bank and use that rate. 

 

A company needs to credit the interest, less 20% tax to the directors loan account. The company then fills out a CT61 and pays the tax to HMRC every quarter. The interest is then included on the directors personal tax return each year.

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