Directors Loan as deposit for mortgage

[mgrover]

Hello

Currently paying off a mortgage and want to purchase another property.

Ofc the whole chain falling through doesn't seem like a lot of fun.

I am thinking, take out a directors loan for the amount of equity in this current house, use that as deposit, buy next house, move, then put this house up for sale, get the equity out and then pay back the loan.

If my understanding is correct as long as it's paid back before the companies financial end I won't have to charge any interest or incur any BIK?

Can anyone seen any flaws here? Aside from paying two mortgages.

Or at worst case, I just issue the dividends and pay the tax on them.

Also any particular overlap for stamp duty won't be fun to navigate.

[hobnob]

There are 2 issues here:

1. How does this affect your limited company and/or tax return?

2. How does this affect the mortgage application?

You're asking about point 1, but you should consider point 2 as well. When you apply for the mortgage, the bank will want to know where your money came from (due to money laundering regulations). If you've taken out a loan to pay for the deposit, that will affect your eligibility: you might not get a mortgage at all, and if you do then you might have to pay higher rates. Taking the money as salary/dividends is a safer option, but you could talk to a mortgage adviser to discuss your options.

[hobnob]

Actually, this looks similar to a question you asked last year (where someone else gave you the same advice re: money laundering regulations):
House Buying Sanity Check - Contractor UK Bulletin Board

[wattaj]

...
If my understanding is correct as long as it's paid back before the companies financial end I won't have to charge any interest or incur any BIK?
...

Your understanding is incorrect: any directors loan over £10k is subject to BIK... unless that loan is covered by a loan agreement that incurs interest at the official rate (~2.25% for 2024).

Even then, this loan MUST be repaid before your company's year end + 9 months and 1 day or it will incur an S455 charge ( currently 33.75%) on the outstanding balance.

This is a withholding amount that can be reclaimed as part of your company's tax return once the loan has been paid off in full.

It's not illegal, or impractical... one just has to be on one's toes for the intricacies.

tl;dr: here be monsters for the unwary. Read HMRC's official guidance RE beneficial loans and then ASK YOUR ACCOUNTANT how to proceed.

[northernladuk]

You need professional advice. Getting this wrong is going to be very expensive. You've already made a mistake about the repayment date so go speak to a professional and get proper advice.

I'll bet they tell you it's possible but warn you not to do it. None of the accountants that post on here suggest using DL loans. Too fraught with problems and getting it wrong means it will cost more than other methods.

Might also want to check with the motgage company. They don't like giving morgages with deposits leant by family so not sure they'll be overly happy with a loan from a LTD either.

EDIT : Also where does this leave your warchest? What happens if your gig falls through while this is all going on?

[mgrover]

Tbf I'll be ringing accountant Monday.

Was more testing the waters here for a more of a quick reply.

In terms of warchest I should be able to support myself for a good 3 years if my current gig goes tits up and am already set till next April if I take the money out the company.

But it would be mostly to tide over till current house is sold. Then instant repayment, but ofc that can take a while but you'd hope within a year.

That is another fair point on whether bank will want to give, I spoke to nationwide the last time. They seemed happy enough.

I thought the same about the interest ie anything over 10k. Last year I borrowed about 30k, repaid it within the year, after several emails and phone calls with the accountant they assured me no BIK, interest and removed the Corp tax charge

So confused af there.

But all in all plenty to mull over ta

[jamesbrown]

https://www.gov.uk/directors-loans/y...-company-money

[mgrover]

https://www.gov.uk/directors-loans/y...-company-money

Honestly I've read it. Hence the confusion.

[jamesbrown]

Honestly I've read it. Hence the confusion.

Perhaps because your accountant is crap.

[wattaj]

...
I thought the same about the interest ie anything over 10k. Last year I borrowed about 30k, repaid it within the year, after several emails and phone calls with the accountant they assured me no BIK, interest and removed the Corp tax charge.
...

WJBS.