Offset Mortgages

[eek]

You can just take all of you cash and stick it into a savings account and do this, as long as you pay it back within the given time period.

That's a directors loan. This is a different method.

[northernladuk]

You can just take all of you cash and stick it into a savings account and do this, as long as you pay it back within the given time period.

Are you sure you are not mixing two issues here. A directors loan of up to £5k has to be paid back within 18 months of year end. A full loan has a whole different set of complications but a time limit isn't one of them I don't believe.

[Wanderer]

A full loan has a whole different set of complications but a time limit isn't one of them I don't believe.

The time limit is the way HMRC deter directors loans actually. May I refer the honourable gentleman to the discussion about Directors loans a while back and specifically S455 charge due at 9 months after the company year end.

Greg@CapitalCity - thanks for the link about holding money in trust, it's been discussed here but no one was quite sure if it had been tried and tested.

Greg, what do you think about the theoretical situation where business assets (like cash in the bank) were used to guarantee, underwrite or offset the interest payable a director's personal debt (eg, a mortgage on a privately owned residence) but without the cash ever leaving the business account. Is there some rule to prevent that? Would it be a BIK? Are banks just not willing to offer such a product?

[northernladuk]

The time limit is the way HMRC deter directors loans actually. May I refer the honourable gentleman to the discussion about Directors loans a while back and specifically S455 charge due at 9 months after the company year end.

Indeed but that is refundable (eventually) so should I would assume this would be factored if you were going to do the loan properly. I assumed time would be a factor when planning this type of loan but not an issue... if that makes sense.

[eek]

The time limit is the way HMRC deter directors loans actually. May I refer the honourable gentleman to the discussion about Directors loans a while back and specifically S455 charge due at 9 months after the company year end.

Greg@CapitalCity - thanks for the link about holding money in trust, it's been discussed here but no one was quite sure if it had been tried and tested.

Greg, what do you think about the theoretical situation where business assets (like cash in the bank) were used to guarantee, underwrite or offset the interest payable a director's personal debt (eg, a mortgage on a privately owned residence) but without the cash ever leaving the business account. Is there some rule to prevent that? Would it be a BIK? Are banks just not willing to offer such a product?

That is what the example above is about. I don't think its the best example as the issue seems to be about putting the company money in the same account as non company money rather than in a single self contained account under your name.

[Wanderer]

Interestingly, it seems if he had the right paperwork in place, and put his company funds into a 'high interest' personal savings account (that did nothing other than hold his company money), he would have been OK.

There's a bit more on it here;
Gabelle Tax Analysis: The dangers of mixing corporate and personal funds | AccountingWEB

Hmm, reading about the case it sounds like the director was playing a bit fast and loose with the company's money to be honest. In particular the bit where he wrote-off part of the loan as a bad debt and sought a deduction as a trading expense wasn't ever going to wash with HMRC. Then he sold his company van and used the money to buy a car for his own personal use...

I don't know if we are really any the wiser if the trust system (done properly) would work for us until someone tries it and gets investigated.

[northernladuk]

Hmm, reading about the case it sounds like the director was playing a bit fast and loose with the company's money to be honest. In particular the bit where he wrote-off part of the loan as a bad debt and sought a deduction as a trading expense wasn't ever going to wash with HMRC. Then he sold his company van and used the money to buy a car for his own personal use...

I don't know if we are really any the wiser if the trust system (done properly) would work for us until someone tries it and gets investigated.

You first

[Greg@CapitalCity]

Hmm, reading about the case it sounds like the director was playing a bit fast and loose with the company's money to be honest. In particular the bit where he wrote-off part of the loan as a bad debt and sought a deduction as a trading expense wasn't ever going to wash with HMRC. Then he sold his company van and used the money to buy a car for his own personal use...

I don't know if we are really any the wiser if the trust system (done properly) would work for us until someone tries it and gets investigated.

Yep, he certainly was playing fast and loose with company money. I think the issue of whether a trust system works is clear - what is less clear is what to do to ensure you are actually holding company funds 'on trust'. The guy in this case was nowhere near meeting the requirements. I think so long as you (a) ask the shareholders to pass a resolution approving the arrangement; (b) keep the money in a separate account from your personal funds at all times, and (c) tell the bank what you're doing - then you will be on strong footing.

@Wanderer - The theoretical situation where business assets (like cash in the bank) were used to guarantee, underwrite or offset the interest payable a director's personal debt......off hand i can't think of how a BIK charge (or any other tax effect) would apply until the funds are actually put to use somewhere other than in the business bank account. I suspect though your first hurdle will be finding an institution that offers such a product. Let me know if you do, and I will take a closer look at this.

[Olly]

(b) keep the money in a separate account from your personal funds at all times, and (c) tell the bank what you're doing - then you will be on strong footing.

(b) From looking into offset mortgages recently it seems that many lenders expect you to use your the offset account as your personal current account but it looks like there's nothing to stop you not doing that meaning the only debits and credits would be to and from your Ltd. Obviously though the Ltd would not receive interest and the account would be in your own name.

(c) ...er....what would you tell the bank? why would the lender need to know about where the money in the offset account came from?

HMRC have set a 4% rate for loans but how is that fair when about the best I can get for my Ltd is 1.75% (Investec are closing their Hi5 account and I can't be doing with chasing introductory rates on long notice accounts for an extra 0.25%)

Even if you do pay the full 4% to your Ltd you still get it back minus 20% Corp Tax + any personal tax which for me is none.

Are bank statements the first thing HMRC look for when investigating? Investigating what? My Ltd already has a number of bank accounts and money flips between them fairly often including between currencies. I account for it all accurately and pay corp tax on any interest but still it's not that simple to see what's going where and why. I know why, but you can't see that from the statements.

[northernladuk]

(c) ...er....what would you tell the bank? why would the lender need to know about where the money in the offset account came from?

A whole host of reasons surely.....