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bigduckontax
bigduckontax, Accountant
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My wife and I are directors in a limited company. our

Customer Question

Hi
My wife and I are directors in a limited company.
our year end is 31 July and we have retained profit of c 125k.
We are purchasing a house as we may need a 'bridging' loan of about 100k until our house is sold to complete the purchase.
The anticipated lag between the completion of the house we are buying and the sale of our house is 6 - 8 weeks.
Could we take a loan from the company of c 100k from early August and replace this amount with the funds from the sale of our house by say the end of September without any major tax implications.
Ideally the completion of the houses would be at the same time but this will probably not be possible. We know we can take dividends but fear this may increase our personal tax bill.
Any assistance will be appreciated
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

What you suggest is perfectly permissible, but to be on the safe side I, as a Chartered Secretary, would be inclined to get full formal Board of Directors' approval for the loan and the terms thereof and have it minuted. All such loans to Directors must be cleared within nine months of the end of the company's accounting year to avoid the most horrendous tax consequences, but in the time frame you envisage in your question this should not be a problem.

Any interest charged by the company on the loan would constitute income for Corporation Tax purposes.

There are no tax concequences for you pursuant to the procedure, particularly in view of the very short nature of the proposed transaction.

I do hope that I have been able to set your minds at rest on this matter.

Customer: replied 2 years ago.

Hi Keith

Many thanks that is really helpful.

There is a small chance that the completion of the house we are purchasing could be before our year end say mid July. - therefore the loan would be from mid July to September

Am I correct in thinking this will have significantly more tax implications as the load will be outstanding at our year end (even though the loan would be repaid by September - i.e a miximum period of 3 months).

Kind regards

Expert:  bigduckontax replied 2 years ago.

The rule is that loans to directors by a company in any accounting year must be cleared within nine months of the end of the company's accounting year in which the loan is made. That gives you nine months from July 2015 which, from your follow up question, appears to be the company's year end, ie April 2016. This loan and its repayment would appear to be comfortably under the wire.

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Expert:  bigduckontax replied 2 years ago.
Thank you for your excellent support.

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