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bigduckontax
bigduckontax, Accountant
Category: Tax
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Hi. I want to get a mortgage against my primary residence

Customer Question

Hi. I want to get a mortgage against my primary residence (mortgage free) and then use the funds to make a loan to a limited company. I then want to charge the limited company the same amount of interest as is on the mortgage and will pass through those load repayments from the limited company to the bank to pay the mortgage. The reason I want to do this is I can get a better mortgage rate against my primary property than I can if I get a mortgage within the limited company (the limited company is operating as a property rental business).
The question I have is from a personal tax perspective can I offset the interest I am paying on the mortgage against the interest I am receiving from the limited company?
Many thanks,
Dan
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Dan, I'm Keith and happy to help you with your question. My answer will, I fear, not be to your taste.
Interest Income Tax (IT) relief on mortgages was removed from 6 April 2000. The interest you receive from your loan to the company is subject to IT at your marginal rate. You cannot offset one against the other.
The interest payable by your company on the load is allowable against the company's Corporation Tax (CT) liability.
The scenario as set out does not work. In this case, with the IT and the CT, the twain will never meet.
I am so sorry to have to rain on your parade.
Customer: replied 2 years ago.

So in this scenario there is no real advantage to be gained by obtaining cheaper funding outside of the limited company? It would be better to obtain the mortgage within the limited company? Can you think of a way to optimise the structure better? We currently have not set up a limited company - basically we are trying to find the most tax efficient way to buy houses to let.

My current thinking is that a Limited Company is best as salary and dividends can be paid and you can manage IHT OK by adding dependents as owners of the company - but the main complication seems to be getting funding as a limited company.

Expert:  bigduckontax replied 2 years ago.
Well there is the tiny advantage of getting cheaper funding. If there are a number of shareholders in the company and are remunerated in one way or another then the sums generated to each individual would be reduced as the jam would have to be spread thinner and that might give individual taxation advantage.
In the long term there might be Inheritance Tax advantages, but bear in mind the 7 year rule for gifts which runs off at a taper and might apply to the dependents if the donor dies unexpectedly and his estate cannot meet the tax after the gifts have been added back into the computation. However that tax does not kick in until assets of decease reach 325K.

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