Reply to: Loaning money to another LTD company

[ladymuck]

setting up company takes 1 day or max 1 week ! so far I have identified the properties I want to buy, now I am hunting for banks/brokers who want to lend me at sub 2%, there seems to be only few companies providing loans in this area - the mortgage works (nationwide subsidiary), molo finance, Barclays and few others through intermediaries which I suppose are brokers ! until I have visibility on securing mortgage I won't open company or make offers

Ok well that sounds a bit more like it. I was a little concerned you were a bit arse about face with how you were approaching it

[i-am-ltd]

Have you had any discussions with brokers for commercial lenders to find out rates, lending criteria, how acceptable an intercompany loan would be? Might be worth having that chat before you set up your SPV and start chucking money around. I'd have done that first, tbh...

setting up company takes 1 day or max 1 week ! so far I have identified the properties I want to buy, now I am hunting for banks/brokers who want to lend me at sub 2%, there seems to be only few companies providing loans in this area - the mortgage works (nationwide subsidiary), molo finance, Barclays and few others through intermediaries which I suppose are brokers ! until I have visibility on securing mortgage I won't open company or make offers

[ladymuck]

Have you had any discussions with brokers for commercial lenders to find out rates, lending criteria, how acceptable an intercompany loan would be? Might be worth having that chat before you set up your SPV and start chucking money around. I'd have done that first, tbh...

[jamesbrown]

that was the personal one, now I am hunting a commercial one sub 2%

Not likely, especially as you're looking to use an intercompany loan as a deposit (many won't accept that). For example, you could get 2.59% (2yr) with the mortgage works @ 75% LTV, but they won't accept an intercompany loan as the basis for a deposit. Rates are only going up from here, possibly way up.

[i-am-ltd]

Was that a personal loan or a commercial one? One is not an indicator of the other...

Oh and banks are already upping mortgages rates and pulling the really cheap deals on the news that inflation is set to stay around 4% for a good while, with the expectation that BoE will be raising the base rate soon.

that was the personal one, now I am hunting a commercial one sub 2%

[ladymuck]

few months ago I got .89% 5 year fix from HSBC with 60% LTV, that is very close to ZERO, anyway I want to do everything above board ! I need to find a lender who lends at sub 2% for ltd company with 75% LTV, otherwise all this discussion is meaningless !

Was that a personal loan or a commercial one? One is not an indicator of the other...

Oh and banks are already upping mortgages rates and pulling the really cheap deals on the news that inflation is set to stay around 4% for a good while, with the expectation that BoE will be raising the base rate soon.

[i-am-ltd]

It's not a loan if it's perpetual.
Market rate is not at all close to 0%. That's the base rate.
Why bother to lend the money to B if the intention is to make it capital later. Just use the £££££ as capital to start company B.

Or. Stop messing around with tax wheezes, take the cash as dividends and buy the property personally. At least that way it's yours, and the profit is yours to spend.

few months ago I got .89% 5 year fix from HSBC with 60% LTV, that is very close to ZERO, anyway I want to do everything above board ! I need to find a lender who lends at sub 2% for ltd company with 75% LTV, otherwise all this discussion is meaningless !

[Fred Bloggs]

It's not a loan if it's perpetual.
Market rate is not at all close to 0%. That's the base rate.
Why bother to lend the money to B if the intention is to make it capital later. Just use the £££££ as capital to start company B.

Or. Stop messing around with tax wheezes, take the cash as dividends and buy the property personally. At least that way it's yours, and the profit is yours to spend.

Absolutely this.

However, I believe it's better to gain property portfolio exposure via real estate investment trusts. Held in a tax shelter such as ISA or SIPP. The silly nonsense of trying to game the tax system short term for an asset that's pretty likely to be a headache longer term should take second place to sound long term personal finance planning. There are very good property portfolios out there with professional management paying solid and high dividends and with prospective capital gains to come. Completely hassle free, tax privileged in ISA or SIPP wrappers. Of course, not everyone agrees.

[Lance]

northernladuk

thanks for your tip on searching the forum, there are some useful posts !

malvolio

my aim is to continue these loans in perpetuity , of course I need to lend money at the market rates which nowadays is at close to 0% :-))

my plan is to acquire a property at 20% or 25% deposit (with deposit coming from company A), any recommendations on lenders with good rates and also accountants who can deal with these setups, my current accountancy is Dolan and they don't seem to be well versed with these semi-complex setups

It's not a loan if it's perpetual.
Market rate is not at all close to 0%. That's the base rate.
Why bother to lend the money to B if the intention is to make it capital later. Just use the £££££ as capital to start company B.

Or. Stop messing around with tax wheezes, take the cash as dividends and buy the property personally. At least that way it's yours, and the profit is yours to spend.

[i-am-ltd]

northernladuk

thanks for your tip on searching the forum, there are some useful posts !

malvolio

my aim is to continue these loans in perpetuity , of course I need to lend money at the market rates which nowadays is at close to 0% :-))

my plan is to acquire a property at 20% or 25% deposit (with deposit coming from company A), any recommendations on lenders with good rates and also accountants who can deal with these setups, my current accountancy is Dolan and they don't seem to be well versed with these semi-complex setups

[northernladuk]

Read up how to search the forums in this thread. https://forums.contractoruk.com/welc...uk-forums.html

Use that method to search for 'inter company loan', 'Company SPV' and other terms. This exact question has been asked many times.

[malvolio]

A company holding equity in another company is putting their money at risk; if the recipient company defaults for any reason, the money will be lost. Also bad debts can be written off against CT, whereas valueless share options won't be. So commercially it's a bad idea.

But it's your money and your judgement on the viability of the new company.

[Fred Bloggs]

The very best thing would be to forget all about BTL. IMHO, of course.

[i-am-ltd]

The gross spread is going to be 2.5%, so it will take 8 years (or more) to make full repayment to company A with 20% deposit coming from company A, also I am thinking in future this debt can be converted to equity, so company A will own shares in B ! The main motivation for doing this is to make the money 'work' rather than sit their idle ! also I am not interested in SIPP/pension !

[malvolio]

Not everything is about tax.

Companies are separate and distinct "persons" in law. Their commercial arrangements are between their directors, so should be reasonable and appropriate. An interest rate of a few points over inflation is probably a good start plus an agreed term for the loan so company A's money is not at risk.

As regards risk, will company B make enough money in its own right to repay the loan in a sensible period - say a financial year?

Others around here have done this in the past, I'm sure you will get some more informed opinions (other than "ask your accountant") in due course!