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Using LTD company as mortgage provider on personal buy to let

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    Using LTD company as mortgage provider on personal buy to let

    Hi,

    I've got a fair amount in cash sitting in my LTD company not doing much.

    Can I use my company to loan me a chunk to pay off a personal buy to let mortgage and i pay my LTD company a commercial rate of interest each month as an interest only mortgage?

    I know you can get a director's loan and pay back with interest after 18 months or so but I'm talking about long term and on a formal basis with contract etc. I'd also want to be able to deduct the mortgage interest from my income tax.

    I'm totally happy to pay a commercial rate of interest to the limited company as at least the money goes back to me (minus corp tax on profits etc).

    Anyone know if the above has been done successfully or not?

    #2
    Whilst you can use the Director's Loan account for this, and you'd need to pay 3% interest on it to not incur a BIK. However, the HMRC call this a beneficial loan arrangement, and so if the loan isn't repaid within 9 months of the financial year end, the company will have to hand over a sum equal to 32.5% of the loan to HMRC with your Corp Tax payment. This is section 455 tax. As you repay the D/L account, then HMRC will refund the S455 tax.

    So lets say your company gives you £200,000 to settle your mortgage. You'd have to pay your company £6000 per year in beneficial loan interest (which is subject to corp tax, so about £1000, leaving about £5000 to redistribute back to you, with dividend tax on that) but you'd have to make an S455 payment of £65,000 from the company to HMRC.

    It is this S455 malarky that makes it probably not worth it. You would almost certainly be better having the company buy the property from you with its spare cash. Yes, there would likely be CGT implications on your gain and stamp duty implications.
    Taking a break from contracting

    Comment


      #3
      I agree in part. The S455 tax would be the biggest drawback in terms of cashflow.

      Any "mortgage interest relief" for a private buy to let landlord is being restricted from this year going forward, this year you can only claim 75% of the interest incurred as a cost against rental income, reducing to 50% next year and so on until in 2020/21 there is no cost relief available. You do still have the tax relief at 20% of the element that you aren't able to claim as a cost but that does mean that your income will be "inflated" by the unclaimed mortgage interest (if your mortgage interest is £5,000 then your rental "profit" would be increased by £1,250 in year 1, £2,500 in year two...)

      As for having the company buy the property, I would caution that any assets held by a trading company are at risk if that company ever faces litigation etc... Also, you would have to pay capital gains tax on the "disposal" to your company and the company would be hit with the additional rate for SDLT.

      If the capital gains and SDLT don't put you off then there are other structures that might be of interest.

      Comment


        #4
        I agree with Chopper - the S455 charges normally make this tax inefficient.

        Better option might be to consider setting up a new Special Purpose Vehicle (SPV) company to buy the property from you personally, and it's possible to release cash from your trading company this way.

        There are SDLT and CGT considerations, but even with these it can be worth doing - especially if you lived in the BTL at some point and Private Residence Relief/Lettings Relief are available.

        Generally only worth considering if the BTL is a medium/long term investment.

        Comment


          #5
          Originally posted by chopper View Post
          Whilst you can use the Director's Loan account for this, and you'd need to pay 3% interest on it to not incur a BIK.
          Since 6th April 2017 the HMRC official rate for beneficial loans has reduced to 2.5%.

          Comment


            #6
            Originally posted by chopper View Post
            ...You would almost certainly be better having the company buy the property from you with its spare cash. Yes, there would likely be CGT implications on your gain and stamp duty implications.

            What about capital losses? Say you bought the property via the Ltd and house prices fell substantially over the coming years. You could then personally buy it from the Ltd at true market value with no CGT and Ltd would have trading losses to offset against future profits reducing future tax bills?

            Of course this means those people on Housepricecrash need to be right, and they've been waiting about 17 years since house prices started getting silly. One day rodders one day.
            Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

            Comment


              #7
              Originally posted by mekondelta View Post
              Hi,

              I've got a fair amount in cash sitting in my LTD company not doing much.
              Originally posted by Patrick@Intouch View Post
              I agree in part. The S455 tax would be the biggest drawback in terms of cashflow.
              Anyone care to elaborate why S455 tax would be a problem if there is enough cash in the company.
              After all this way will be the cheapest way to get cash and repay your BtL mortgage. In the £200 000 example it will only cost 20% of the 2.5% p/a interest you pay to LTD. And this is shrinking every year because the you keep repaying your LTD.
              Also you will get back the S455 tax when you repay your LTD. With interest ~0% you will not loose much on the £65000.

              Comment

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