Director loan to the company tax efficiency?

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    Director loan to the company tax efficiency?

    Hi
    I'm about to buy a flat in my first ltd company's name. I don't yet have an accountant but I'm actively working on it
    I have the private funds to lend the 90k to buy the flat outright to my company interest free and then the rental income will pay down the loan back to me as a director

    Tell me, is this rental income taxed if it is solely paid back to me to repay the monies lent to the company?
    It is interest free so I'm not gaining in that regard I'm just getting back what I lent (over several years until the original debt is repaid)

    Thanks!
    Chris

    #2
    If the company owns the flat, the company will pay tax on the annual profit = rental income less "operating expenses" :

    Operating expenses for company includes property maintenance, letting agent and interest on director's loan ( if charged)

    The company can reduce the Director's loan , from " balance of cash remaining after paying company tax ".

    There is no tax on partial repayments of loan to director.

    But don't rely on this information as I am not a professional tax advisor .

    Comment


      #3
      Thanks for the reply Gordon. I'm not replying on your info it just really helps to check if I'm likely barking up the wrong tree or not.
      To be more specific the reason for creating this company is to create a sass pension rather than making a profit per se.
      As such my proposal is to take the full £650 rent off the tenant into the company and then pay all of it back to me as a director's loan therefore earning no profit at all and therefore be liable for no tax. I may well have oversimplified my theory and might be talking nonsense but any suggestions or confirmation received is greatly appreciated!

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        #4
        I am considering doing much the same.

        In my case the aim would be to get the necessary funds into a company when needed, without having to pay tax to get it back out again. I don't much want to increase my own income so would be thinking either low interest or interest free.
        There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

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          #5
          Hey Doobrey. Im delighted that someone in the know is considering similar. That shows I'm not too far off.
          For me it's simply a case of if i can find a house entirely by lending my own money to the company and then getting the rent back tax free to my pocket then o get a paid for house and a tax free income from it? Just sounds too good and simple to be true that's all!

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            #6
            I wouldn't call it tax free. The company is liable for corporation tax.

            It just means you aren't paying personal tax on top of that. (But equally, you are lending money at zero return...)
            There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

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              #7
              In conclusion I see no free lunch. The Ltd receives income and pays tax on profit. As an individual you make no income and pay no tax.
              There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

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                #8
                Hi Doobrey. That's the basis of my question. If my company is only taxed on profit and it earns £650 per month in rent then has to pay the director's loan off at £650 per month then it makes no profit and therefore pays no tax?

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                  #9
                  Ah, I see. No, It won't work like that.

                  Loan *interest* is a tax deductible business expense. Repayment of principal is not. Typically a monthly mortgage payment will have an interest component (tax deductible) and a repayment component. In the case of a zero-interest loan, there will be no interest component.

                  Your £650 is reducing the loan balance and therefore building equity in the company. It is profit.
                  There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

                  Comment


                    #10
                    Suggest you consult a local accountant because what I think you are trying to achieve is tax evasion , pure and simple

                    Comment


                      #11
                      I'm trying to find an accountant that is sensibly priced for 2 property portfolio. Any recommendations? I don't want to do a yellow pages lottery or whatever the modern equivalent is !

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