Reply to: Directors Loan as deposit for mortgage

[jamesbrown]

What the hell is an LLC? When did this become contractorusa.com?

[Martin@AS Financial]

Since 9/11, banks get very nervous when it comes to evidence of deposits and therefore expect to see proof the outset of a mortgage application.

Even if they do not request this, the solicitor will report the source of funds and it is highly likely that your mortgage offer will be withdrawn.

[mgrover]

Remember you are asking advice in a professional area of a board full of grumpy contractors. You'll get short shrift if you are floating random ill thought out ideas if you've not spoken to an accountant first. We are just your peers, not tax professionals. You could use it as a sounding board but someone comes on and says yeah great idea, don't pay any tax and fill your boots and you get all giddy and you are off down a very dangerous path. You could also get someone saying no when the answer is actually yes so it's not very helpful. Speak to X Y Z is often the best advice by far.

I don't think anyone will know anything about renting through LLC's so your sounding board will be coming back with close to complete guesses.

fair enough, will keep that in mind.

[northernladuk]

and people being like, "well why not speak to X, Y Z". sometimes a sounding board is nice.

Remember you are asking advice in a professional area of a board full of grumpy contractors. You'll get short shrift if you are floating random ill thought out ideas if you've not spoken to an accountant first. We are just your peers, not tax professionals. You could use it as a sounding board but someone comes on and says yeah great idea, don't pay any tax and fill your boots and you get all giddy and you are off down a very dangerous path. You could also get someone saying no when the answer is actually yes so it's not very helpful. Speak to X Y Z is often the best advice by far.

I don't think anyone will know anything about renting through LLC's so your sounding board will be coming back with close to complete guesses.

[mgrover]

Yes, that was your same logic last year, that there's a chance another house like this may never come on the market again. If that's the case, then maybe step back and look at how to be as tax efficient in your business as possible - is your partner a shareholder, and are you paying them the max amount of dividends to be tax efficient? etc etc.

Ngl I actually completely forgot about the thread from last year.

That particular house did slip through and we were pretty gutted, but tbf for different reasons than the chain falling through.

But its kinda hard to find rural homes, in an area wanted millions for less but ofc it needs massive rennovations allowing us to build what we want but its also not a million miles away from family. Who knows maybe we just need to drop a requirement or two.

Yes she is a shareholder.

The initial plan was always to rent this current property but not via the LLC, mostly didn't fancy the overhead and faff. But the tax implications didn't seem ideal so we though we'd just sell up, the LLC buying this property seems to kill two birds with 1 stone.

Then we can stay here, pay the LLC rent, have the deposit from the equity waiting to make an offer.

[WTFH]

to make matters a bit worse, we have very specific location/housing requirements, so I'd rather not let a house slip through by just not exploring the available options.

Yes, that was your same logic last year, that there's a chance another house like this may never come on the market again. If that's the case, then maybe step back and look at how to be as tax efficient in your business as possible - is your partner a shareholder, and are you paying them the max amount of dividends to be tax efficient? etc etc.

[mgrover]

You claim you are doing this because you don't like the idea of a chain collapsing.
Why not take the money out of your company, pay the taxes on it, and do it the proper way.
Or just accept that sometimes there's someone in a chain who isn't good at organising their finances, or tries to do something risky, which causes it to collapse.

If you are taking a director's loan based on what you think is the equity in your house, before you even put it on the market, then there is a risk that if your house does not sell quickly, or does not achieve the value you put on it, then you'll end up in a bit of a financial mess.

because I don't have to accept that I guess? to make matters a bit worse, we have very specific location/housing requirements, so I'd rather not let a house slip through by just not exploring the available options.

either way I've already moved onto the next hare brained idea

the loan does seem like more of a headache than its worth and now worth yet another phone call with the accountant to straighten out the 30k sum.

also I make no bones about being as tax effecient as possible, why take lets say 100k out, pay that tax, and then it falls through and before ya know it coulda waited till after next April or whatever.

btw these are just "ideas". people on here seem to think it's like a pipeline straight from idea to me removing 100k from the company.

[WTFH]

actually maybe yet another idea.

buy this house by my LLC, which allows me to extract X the equity required.

then it allows me to buy another house and when we move out rent this one.

I just really want to avoid being in a chain haha it sounds like such a massive faff.

and people being like, "well why not speak to X, Y Z". sometimes a sounding board is nice.

Please read your previous thread.
Please get a proper accountant.
Please learn about moving house and be honest with yourself and those who offer you advice.

And see you next year when you ask the same question with a new variation on it.

[mgrover]

actually maybe yet another idea.

buy this house by my LLC, which allows me to extract X the equity required.

then it allows me to buy another house and when we move out rent this one.

I just really want to avoid being in a chain haha it sounds like such a massive faff.

and people being like, "well why not speak to X, Y Z". sometimes a sounding board is nice.

[WTFH]

You claim you are doing this because you don't like the idea of a chain collapsing.
Why not take the money out of your company, pay the taxes on it, and do it the proper way.
Or just accept that sometimes there's someone in a chain who isn't good at organising their finances, or tries to do something risky, which causes it to collapse.

If you are taking a director's loan based on what you think is the equity in your house, before you even put it on the market, then there is a risk that if your house does not sell quickly, or does not achieve the value you put on it, then you'll end up in a bit of a financial mess.

[mgrover]

Most lenders will not allow you to borrow the funds from the Limited Company as a Directors Loan, it would have to be salary and dividends. Whilst it may be your Limited Company, it is after all, a separate legal entity to you as an individual so it is viewed no differently than you borrowing the funds as a personal loan from a bank. Lenders do not like it when you borrow funds for a deposit as if you are borrowing funds for the deposit and borrowing funds by way of a mortgage to make up the rest of the money you need for the purchase, you won't have actually personally contributed anything yourself so do not have any skin in the game so to speak.

There could be one or two who could possibly consider it (cannot think of any off the top of my head) but they would want to factor in the repayment of the loan as a commitment so would expect to see an agreed monthly repayment and that figure would have to be factored into affordability. If you already have a mortgage on your current property which is not being repaid, that would have to be factored into affordability too so your income would have to be enough to support all 3 (current mortgage, directors loan and new mortgage).

Have you also considered the stamp duty implications too? If you are not selling your current property then you will be liable to pay an extra 3% stamp duty on the purchase of the new property too. You would get that 3% refunded after you sell your current property (so long as that sale completes within 3 years of the new purchase completing) but nonetheless, something to consider for cashflow purposes.

thanks for the reply,

yeah the stamp duty thing is not ideal but the refund is thankfully possible. it shouldn't hamper any cashflow problems.

the rest i guess would be up to the lender.

given it's monday time to ring the accountant and mortgage broker.

[TheMortgageSquad]

Most lenders will not allow you to borrow the funds from the Limited Company as a Directors Loan, it would have to be salary and dividends. Whilst it may be your Limited Company, it is after all, a separate legal entity to you as an individual so it is viewed no differently than you borrowing the funds as a personal loan from a bank. Lenders do not like it when you borrow funds for a deposit as if you are borrowing funds for the deposit and borrowing funds by way of a mortgage to make up the rest of the money you need for the purchase, you won't have actually personally contributed anything yourself so do not have any skin in the game so to speak.

There could be one or two who could possibly consider it (cannot think of any off the top of my head) but they would want to factor in the repayment of the loan as a commitment so would expect to see an agreed monthly repayment and that figure would have to be factored into affordability. If you already have a mortgage on your current property which is not being repaid, that would have to be factored into affordability too so your income would have to be enough to support all 3 (current mortgage, directors loan and new mortgage).

Have you also considered the stamp duty implications too? If you are not selling your current property then you will be liable to pay an extra 3% stamp duty on the purchase of the new property too. You would get that 3% refunded after you sell your current property (so long as that sale completes within 3 years of the new purchase completing) but nonetheless, something to consider for cashflow purposes.

[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.

[jamesbrown]

Honestly I've read it. Hence the confusion.

Perhaps because your accountant is crap.

[mgrover]

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

Honestly I've read it. Hence the confusion.